NY's tax-free business plan is bold but uncertain

ALBANY, N.Y. (AP) -- Through much of the last century, New York built America's locomotives, automobile parts, steel girders and more through three shifts a day. Today, the Empire State is next to last on CEOs' list of states to set up shop.

The decline came over more than four decades of economic erosion for much of the state outside New York City's nearly unshakable economy. The state played a high-stakes game of offering tax breaks, but it yielded more political scandal than economic turnaround.

Now, Gov. Andrew Cuomo wants to go all in.

He's proposing a new way to lure high-tech companies and entrepreneurs by waiving all business and property taxes and even state income taxes for all their employees for up to 10 years if they move to New York and partner with a college campus.

As the governor touts the tax-free pitch as a major upstate economic development plan, policy experts say it's a unique approach but warn it could backfire and actually hamstring the state's economy. Either way, other states are watching closely.

"This is exactly the kind of thinking that makes New York score so poorly in our tax index," said Scott Drenkard, an economist with the Washington, D.C.-based Tax Foundation, a nonpartisan, national tax research association. "The bread and butter of a good tax policy is its broad-based taxes. That means you don't have giveaways to certain businesses. Instead, you operate on a level playing field."

Cuomo spent much of last week barnstorming around the state to pitch his biggest and most aggressive attempt to turn around what for decades has been dubbed the "upstate problem:" young New Yorkers fleeing for jobs elsewhere. Cuomo said his proposal will supercharge job creation.

But his plan also raised broad concerns. Academics fear a commercialization of higher education, while business leaders say the proposal makes second-class citizens out of the businesses that stuck around and paid taxes through hard times.

Under the plan, people who already live in New York would foot the bill for services for new companies that will enjoy no taxes for 10 years. There's also no guarantee the new companies, some of which will be highly mobile startups, will stay after the 10 years. And even if Cuomo wins two more terms, he'll be long gone by then.

"It's a risk you run," said Brian Sampson of the Unshackle Upstate business group, which support Cuomo's proposal.

Cuomo, however, is also being credited for trying something bold.

The program "is the type of visionary thinking we need from our leaders," said Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., who is supporting Cuomo's effort and whose company has donated to Cuomo's campaign.

Others say New York, dragged down by its politics and the political influence of business and labor, is still a step behind.

Chief Executive magazine, which provided the survey ranking New York so low among CEOs, points to other states that are instead cutting or eliminating broad-based taxes and expenses for all employers, not just a few.

The magazine's study notes that Wisconsin, Indiana and Michigan are daring to try a combination for economic growth that would be untouchable in New York politics: cutting many taxes while eliminating some business taxes and reducing the political power of public employee unions. Wisconsin, for example, is trying to add jobs by helping existing small- and medium-sized companies grow.

In New York, Cuomo has instead focused on reducing the growth of the nation's highest taxes. He had campaigned that he would freeze taxes, but he and lawmakers twice extended what was to be a temporary income tax on millionaires to raise $2 billion a year. As a candidate, he opposed the same tax as a job killer, but as governor he found he couldn't do without it in a prolonged recession.

Next year, when he's running for re-election, he plans to send $350 checks to middle-income New Yorkers, money that comes from the extension of that tax.

Others watching their children move to other states for jobs lashed out at Cuomo's latest tax-free idea.

"What makes these corporations more important than the small businesses already here?" said Republican Assemblyman Kieran Michael Lalor of the suburban Hudson Valley, north of New York City. "Why should New York's struggling small businesses continue to pay high taxes, while the governor lets a few pay no taxes at all?"