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Interesting idea proposed by Gov Cuomo of NY

Don't wanna pay taxes? Work near SUNY

Gov. Andrew Cuomo wants to create tax-free hot spots near the state's public universities.

In an attempt to shed New York's image as a "tax capital" of the U.S., Governor Andrew Cuomo on Wednesday unveiled the first of a few initiatives that will create tax-free zones across the state.

The proposal, expected to pass this session, would treat areas around each of the 64 State University of New York campuses as neighborhoods where businesses would not have to pay sales or property taxes. The program meant to spark development upstate would be of little direct benefit to New York City, since City University of New York campuses would not be included.

The plan would also mark the first time New York implemented a program in which employees wouldn't pay income tax on their wages. The goal is to attract start-ups and help new businesses thrive and create more jobs in depressed areas. The tax-free incentives would extend to an area 200,000 square feet around each campus.

What do you think?

Answers

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Wayne – It is a good idea on the surface, but are taxes the problem, or is the government spending in the state the problem? I read the article. The only thing I saw related to decreasing spending is to cut out the $440M tax subsidy for film and television production. The article doesn’t say, but I am curious why the City University of New York campuses aren’t included. This may ultimately lead to the “It is not fair!” crowd coming out in full force. After all it has to be fair…or so the entitled mind thinks.

Getting rid of the tax subsidy for film and TV may have an impact on the economy, but I speculate it would have only a little. I base my opinion on the lure of the New York area, whether statewide or the Big City. The lights and historical aspect of the state would not be enough to make people stop filming there. Just like people would up and leave L.A., Hollywood, etc.

I hope it gets passed for the folks that want it passed, especially people paying state income tax on their wages. Why does New York need so much of its peoples’ money?

Tennessee, where I am, doesn’t have state income tax on wages, I am thankful for that; the Feds get enough as it is.

Anonymous
(Manager) |

It's a 100% proven fact that the economy works best when central planning picks winners and losers. So, if college towns are the designated winners and nearby or even not so nearby towns lose, it's all for the greater good and that good ought to be great enough for anybody!

Everybody knows college towns are special and need the most help.

How do I know this is a good idea? Because politicians and political appointees of all parties are the smartest, most productive, and least corruptible members of society. That's why America has the simplest and fairest tax system in the world.

That much is obvious.

Further, I can see no unintended consequences from this plan as employers never shift in previously unimagined ways to adapt to changes. I mean, who would vacate one town to move to the next town over to avoid paying a boatload of taxes? That is crazy talk.

In closing, I am so relieved to read that New York's economic problems are now over. Phew... close one.

Jim Schwartz
Title: Corporate financial advisor
Company: Wabash Financial Strategies
(Corporate financial advisor, Wabash Financial Strategies) |

Bad idea, not only for all the reasons Anon describes but for many others as well. The gov ignores or at least fails to confront excessive taxation and spending, root cause issues. It is a lipstick-on-a-pig solution to the state's lack of competitiveness.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

So what I'm hearing are that Economic Development Zones and Industrial Development Agencies are bad ideas then...

Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

This deteriorated into political talking points rather than a discussion on the merits - so not much of an answer.

Silicon Valley is arguably based on efforts by some professors at the local universities to build the local economy and to keep students in the area. It is not uncommon for graduates or professors to want to build business based on their educational efforts - and so it is not crazy to think of university towns as a place to grow some types of business.

Trade zones and incentive zones are also common - everywhere from Taiwan to Hong Kong to Ireland to some of the border towns in Texas. Some of them are highly successful (see Technology Parks in Taiwan) - some become more tax strategies (Ireland to the rest of the EU) - and some are actually limitations on trade rather than promotions (see Texas border towns). However none of them are bad in themselves - and all are possible assists.

I would not interpret your responses as anything beyond the state of our political discourse in the US - nothing is non-political - everything needs to be about right or left - and ideas are only good if they occur in your political flavor.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Bob - Thanks for your response. In efforts to get the topic back to the discussion on the merits, what specific merits can we see, or have we seen, in the U.S.? It is often easier to focus on the reasons why not.

I think this went to the political talking points because it was focused on a politician’s proposal as presented in an editorial. When politicians get involved it is hard for many to not make it political.

I would certainly welcome a discussion on the benefits Silicon Valley is experiencing, or elsewhere.

Anonymous
(Manager) |

Bob, if someone disagrees with you, they are being "political," whereas you are just discussing the merits?

What if someone believes the merits are miniscule or negative compared to other options? Are they being "political" for disagreeing with you?

What about the option of a high tax state like New York lowering everyone's taxes evenly? Is that so crazy?

Is it a coincidence that lower tax states have faster growing economies?

High tax California is quickly becoming a state for the very rich and the struggling and that is in spite of it's ample natural and historical advantages.

Your argument that everyone does it (trade zones) may be the first talking point parents de-bunk for young children with "if everyone jumped off a bridge, would you?"

Consider that time and money spent conforming to government artificial fiat (moving to a college town, filling out paperwork) often doesn't actually produce anything of actual value. See our tax code.

Later you compare Cuomo's plan favorably to doing nothing, which is in my opinion a stalking horse to make doing something bad look good. How many times has the U.S. taxpayer heard "we have to do something!" I think, that was one of the main arguments for Obamacare, which a majority, now growing, has always opposed. Well, we sure got our "something."

Finally, business doesn't need incentives. Profits are incentive. Business needs government to reduce it's wasteful disincentives (taxes) and burdensome regulation... not exactly the same thing unless you believe letting you keep a little more of your money is really government generously sharing a fraction of it's money with you.

Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

Sure Chris. There are multiple places to start:

1) Should government take specific actions to incentivize business. All US State governments do (and most foreign governments as well) - regardless of political party. Are they fair and even handed - rarely. Do they work at times - yes they seem to work related to keeping jobs local, attracting and retaining business, growing local business communities. Are they a zero sum game - probably - I'm not sure the worldwide economy as a whole actually gets bigger based on these types of incentives. However incentives for businesses are standard operating procedure. Ideally they are the least distortive possible - so something that is a time limited incentive (first xx years) and that is clearly visible (not a subsidy) is better than other long term distortions. On this point Gov Cuomo's suggestion seems like standard practice and an attempt to do something for business in his state.

2) The second thing government's do related to incentivizing business is focus on what types of business. Big business almost always gets a deal (every state in the country does this). If you are thinking about the types of jobs you want, or want to keep, what types of jobs are those. Technology is closely tied to university - research, talent, new ideas, young energy. If you want to create technology jobs this is a good place to start. Or, possibly, you are looking to locate business around a university to employee graduates - keeping educated people in the state. You could make a case for keeping employable talent in the state generating long term benefits for your state.

Businesses would only start in these locations if they can be successful (access to markets, staff, resource, logistics) - so hopefully companies will not start there if they have no chance to succeed. The risk to the government is in lost tax revenue - which may be offset by increased economic activity. That is a confined upside risk - and not an unknown downside risk.

So - when compared to doing nothing to attracting business this appears to be a positive step. NY has chosen to be a bigger government / higher tax state - and they still have a vibrant business environment including the financial capital of the US. Given where they are starting from and who they want to be - this seems like a fairly standard twist on standard government business promotion strategy.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Thanks again, Bob, for responding. There is definitely risks and rewards in this situation not only for the government, but for the businesses also. It could pay off well if it is executed well.

I have seen in Knoxville, where I live and work, how big businesses have received deals, many of them include payments in lieu of taxes for so many years. It has helped tremendously by bringing companies to Knoxville. Just over a year ago, Knoxville was ranked as one of the 10 fastest growing U.S. Cities according to CNNMoney (April 5 2012). I think it is mostly due to the fact that there is no individual income tax, death tax, as well as the beautiful area.

Mentioning universities also, in Knoxville we have the University of Tennessee Medical Center, which is ranked pretty high in medicine. There is a new proton therapy center being built right in Knoxville to service cancer patients through this therapy. When it is finished it will be 1 of 14 in the nation. A lot of research, talent, and new ideas in medicine are happening here through UT Medical Center, which may provide employees for the proton therapy center, as well as other medical advancements.

It will be interesting to see what the people of NY decide regarding this idea.
Something about New York, and California for that matter, I am unable to understand is how these states can be a bigger government/higher tax states and both be vibrant in business and culture.

Thanks again for your comments. Perhaps others will join in the business side also to discuss the benefits or hindrances with a proposal like Gov. Cuomo's.

Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

Hi Chris. It is a topic that challenges fixed political positions - reality often does on both sides.

California has two world class (as in top in the world) industries - Technology and Entertainment. There are other parts of the world where both exist - but I would propose any fair evaluation shows us still as the clear leader. We are also the 8th biggest economy in the world. All disparagements about California from outsiders aside - and all current problems aside - California has many successes.

Some of those are based on culture - something disparaged as often as our tax models. There were some interesting studies in the early 1990s about why Silicon Valley beat out the Boston area for clear leadership - and most of those pointed to a less hierarchical corporate management structures and a more open / free-wheeling environment as the keys to our success. It may be the types of people who work in those industries, or the types of culture they want, or the types of lifestyle they want, or their belief or value system. If you take a look at the Technology Centers in the US you will notice they are in blue areas and not red. You could draw conclusions about that.

Most of the current studies on Silicon Valley say it is the ecosystem that generates the success – the investors, legal/accounting know how, engineers / scientists, mobility/built in knowledge base, entrepreneurs, our tolerance for creative destruction and change, and so on that make our area the major leagues for tech companies. You’ll notice that taxes do not come into that equation at all - either because they are not a major cost or because most clever companies leverage the loopholes in the tax code.

We are also extremely international – we are interested in the best talent regardless of where it comes from. Silicon Valley people are over 40% of Asian ancestry, less than 40% Anglo, and the rest of Hispanic/African American or other nationalities. We already look like the world – we compete around the world (huge export source for the US) – and we don’t close ourselves off from the rest of the world.

I have been an executive in three technology companies – including the current one I co-founded. Two of them were in Virginia – and my current has been in California since it’s inception. Personally I can tell you taxes are something I think about around year end and to plan during the year – but they are inconsequential for business strategy. My business concerns are more about finding the right people, accessing the right markets, what the local cost of living is for everyone (housing more than taxes), education opportunities, and where I want to live – all of these are far more important than a few percentage points in taxes.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

For those who don't live in NY, the biggest offender of taxing authority is not the State, the Cities, Towns or Villages (although if they learned how to properly run these entities they could be out of debt/lower taxes), it is the School Districts.

I pay over $7,000 a year just for my School District and it goes up every year with the same arguments. The sad part is those of us who are not users of the Schools fail to voice our concerns and vote NO on those same budgets.

But, even if we did, the laws have fall-back provisions that cause the budget to go up regardless... Catch 22...

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

I'm a New Yorker and this notion appeals to me, though I believe it should include CUNY as well as SUNY schools.

Commerce already develops around college campuses for obvious reasons, so my question would be what types of businesses such a bill would be intended to attract. If it is tax breaks for pizzerias and local pubs it is less compelling to me. If it would target companies who can offer internships and help develop the students in addition to spurring economic development, it seems like it would be a useful measure.

Companies shuttering one location and moving it to this tax free zone seems like an obvious risk since this is not "new" investment in the state.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Ken -

It can't include CUNY because that is the City University, not the State University of New York and this would be a state program.

Including CUNY would open the door for one of the other 40 or so private colleges in NYS to request the same.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Wayne - CUNY is a public system. It's dual funded by the City and State (check out link to their site below).

http://www.cuny.edu/about/administration/offices/bf/ubd/faqs.html

Passing this bill which excludes a large group of NYers while favoring another group will draw some criticism. Imagine no income or property taxes in these zones in the Five Boroughs. It would be an automatic pay increase for faculty, which would attract talent. Corporate parks could form around campuses like Baruch, Queens College, City College. The CUNY system would get a nice boost.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

That's the point - it's funded by the City. SUNY is totally funded by the State.

CUNY already has incubators and other types of programs.

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