Senator Proposes Windfall Profits Tax
The Empire State is about to strike back against businesses some say are making too much in profits each year.
The “Empire State Windfall Profits Tax Act of 2023” has been introduced by state Sen. Kevin Parker, D-Brooklyn and member of the state Senate Finance Committee. It would impose a 25% tax on companies whose profits each financial quarter are more than the company’s average annual profits from Jan. 1, 2015, through Dec. 31, 2019. Specific regulations to file, withhold and deposit the windfall tax money will be developed by the state Commissioner of Taxation and Finance if the legislation becomes law.
Year-end financial results for 2021 showed earnings across S&P 500 companies increasing a little more than 30% in the latest quarter. Margins, which show how much profit companies make off every $1 in revenue, remained near record levels, even as expenses sometimes rose by hundreds of millions of dollars. In the last three months of 2021, companies in the S&P 500 held onto $12.40 of every $100 in revenue as profit, according to FactSet. That’s down a bit from previous quarters, but still above the average of $11 over the last five years.
The Associated Press recently reported U.S. inflation surged to a new four-decade high in June because of rising prices for gas, food and rent, squeezing household budgets and pressuring the Federal Reserve to raise interest rates aggressively — trends that raise the risk of a recession. The government’s consumer price index soared 9.1% over the past year, the biggest yearly increase since 1981, with nearly half of the increase due to higher energy costs.
Lower-income and Black and Hispanic American have been hit especially hard, since a disproportionate share of their income goes toward essentials such as transportation, housing and food. But with the cost of many goods and services rising faster than average incomes, a vast majority of Americans are feeling the pinch in their daily routines.
“As families struggle with inflation and scramble to pay for everyday items, namely groceries and car fuel, it is important that New Yorkers see the appropriate financial adjustments where possible,” Parker wrote in his legislative justification. “During the COVID-19 emergency plenty businesses saw windfalls in profits and yet failed to provide consumers with cost reductions or incentives to combat the exacerbated inflation. People continue to struggle to make ends meet and if they are to experience more inflation without the proper financial adjustment it will leave many working families in dire straits.”
In addition to the state windfall profits tax, local municipalities would be able to impose a similar windfall profits tax on any covered taxpayer.
Parker also wants to create a new fund, the Protect New Yorkers From Surges Fund, where windfall profit taxes would be sent for eventual return to state residents in the form of rebates or tax credits. All state residents would be eligible for the fund other than nonresident aliens, children who are claimed as dependents on a parent or guardian’s tax filings or estates and trusts. Tax credits available would be reduced by 5% as income increases for those earning more than $80,000, $115,000 if claiming head of household on their income taxes or $160,000 for those filing a joint return.
The typical working household making $40,000 to $60,000 earned $2,193 more in 2021 than the year before, according to an analysis by Penn Wharton Budget Model. That fell short of the $2,712 in additional costs due to inflation, leaving that household $519 in the hole, according to a recent Associated Press report.
“By imposing an excise tax on the windfall profits received by businesses in the state we can ensure that New Yorkers receive the necessary relief in reduced cost and tax credits instead of funneling record cash back to big business,” Parker wrote. “An excise tax would support working families and strengthen our local and state economy, while allowing profits from the businesses within the state to continue without exploiting New Yorkers.”