The Dark Side of New York State's STAR Exemption Program

by By Douglas Lee Adams

Executive Summary

Governor Eliot Spitzer proposed a $6.1 billion “middle-class” STAR exemption program of property tax relief for the state’s overburdened primary, owner-occupied homeowners. The program was initiated in his 2007 budget proposal, and is to have a three year phase-in period. An income limit provision of $235,000 addresses a major flaw of the original STAR exemption program. While such a limit is a reasonable first attempt to salvage a politically popular program, it's too early to pronounce judgment on the entirety of a program that hasn't run its course.

The original STAR exemption program, however, has compiled eight years of data. It is clear from the data that the original design flaws of the STAR exemption program continue to thwart meaningful property tax reform. While the new income limit will have a positive effect, the STAR exemption will still deliver far too little property tax relief to those who most need it. With details largely unknown, there is no news in regard to any cost containment provision in the enhanced STAR exemption package. Without some form of structural change to reduce costs, particularly pension and medical spending, the governor’s STAR exemption program cannot keep apace with spiraling school budgets moving forward.

Finally, after slicing the top state income tax rate from a 1972 peak of 15% to today’s rate of 6.85%, the collective impact of sales, property and income taxes paid by New Yorkers is now decidedly regressive. Given the regressive nature of the current tax code and the fact that the STAR exemption ignores the underlying cost structure of school funding, adding exemption costs to income tax rolls can be expected to unduly impact mid and especially lower income taxpayers, allowing upper income taxpayers to effectively assign their fair share of funding a basic common good to those on the lower rungs of the income tax ladder. While the new STAR exemption program will finally recognize income, ignoring the cost side of the equation continues to render any overall tax reduction illusory.

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