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Civic Report
No. 47 November 2005


Pricing the “Luxury Product”: New York City Taxes Under Mayor Bloomberg

Endnotes

  1. "Mayor Says New York is Worth the Cost," The New York Times, Jan. 3, 2003, p. B3.
  2. Mayor John V. Lindsay responded to the 1969 recession with a series of damaging new tax hikes, including a 75 percent increase in the city's personal income tax rate, a penny-per-dollar increase in the city's sales tax, and an expansion of the UBT to capture the partnership profits of physicians, lawyers and other professionals. These rate hikes were large enough to push up net city tax receipts by 53 between fiscal 1970 and 1975, even though the city was hemorrhaging private sector jobs. But they still weren't enough to keep up with the growth in the budget, which expanded by an incredible 80 percent in the same period. The tax hikes nudged the city into economic free-fall. When Lindsay's second term began in 1970, total city taxes were slightly below 8 percent of personal income. By 1977, this figure had soared to well over 10 percent. During the same period, the city lost an incredible 600,000 jobs.
  3. "Report by the Chief Economist, Comptroller's Budget Office, on the Impact of the Local Tax Burden on New York City," Stephen Kagann, Ph.D, Chief Economist and Zheng Gu, Ph.D, Senior Economist, April 1991.
  4. To be sure, Giuliani's pro-tax-cut philosophy was not consistently applied. After eliminating the city's commercial rent tax (CRT) in outer boroughs, he favored retaining the tax in Manhattan and using the proceeds to finance construction of a new Yankee Stadium on the West Side of Manhattan. The proposal ultimately got nowhere, but it effectively stalled repeal of the remaining CRT, which is still in effect.
  5. This number needs to be kept in context. On the city's 2001 tax base, the Dinkins-era increases cost the city's resident taxpayers and property owners at least $1.8 billion — including $400 million in increased property tax rates, and $1.4 billion from the two income tax surcharges. The net, self-initiated changes in city taxes since 1990 added up to, at best, a token cut of $400 million, including a short-lived fiscal 2002 reduction in the personal income tax surcharge.
  6. The combined state and city personal income tax rate in New York dropped for five out of six years between 1995 and 2002. Solely as a result of state actions, the combined corporate income tax rate dropped almost every year from 1994 to 2002. The state also killed several taxes that fell especially heavily on New York City, including the "Cuomo tax" on large real-estate transactions, the state hotel-room tax, and the added estate and gift tax.
  7. Personal income reflects only a portion of the actual city tax base – which, after all, includes corporate income and the purchases of non-residents. But in the absence of an authoritative, long-term measure of gross city product, personal income is the best available proxy for the city's economy.
  8. The estimated tax burden under Giuliani excludes fiscal 2002, which was affected by the sudden and precipitous drop in tax revenues after the World Trade Center attack.
  9. The tax cut in question was the beginning of as partial phase-out of a 14 percent income tax surcharge enacted in 1990.
  10. Testimony by Mayor Bloomberg During Public Hearing on Local Law (Pre-Considered Introductory Number 230-A), July 30, 2002.
  11. Details of the trend in cigarette tax collections can be found on page 86 of the Mayor's Executive Budget Message for 2006.
  12. "Cigarette Smuggling Linked to Terrorism,"Washington Post, June 8, 2004, p. 1
  13. At the time they voted for repeal of the commuter tax, state Senate Republicans and Assembly Democrats were vying to influence the outcome of a special election for a vacant Senate seat in suburban Rockland County.
  14. The state income tax itself is a commuter tax imposed on all wage and salary income earned in New York State, regardless of the taxpayer's place of residence.
  15. For details on the bizarre twists and turns introduced to the city tax code by the 2003 income tax statute, see the Manhattan Institute's online FiscalWatch Memo of June 9, 2003, "New York's Ugly Stealth Tax Hikes," posted at http://www.nyfiscalwatch.com/html/fwm_2003-07.html
  16. See E.J. McMahon, "The $36 Billion Bonus: New York's Gains from Federal Tax Cuts," Civic Report No. 43, Manhattan Institute Center for Civic Innovation, August 2004.
  17. In the aggregate, the Manhattan Institute's federal tax policy simulation model indicated that that households in New York City with incomes above $125,000 saved nearly $2 billion in federal income taxes while paying about $410 million more in City income taxes and about $420 million more in State income taxes.
  18. For more on this phenomenon, see Robert Carroll, "Do Taxpayers Really Respond to Changes in Tax Rates?", U.S. Treasury Office of Tax Analysis, OTA Working Paper 79, November 1998.
  19. Securities Industry Association, "The Street, the City, and the State: The Securities Industry's Importance to New York City and State," Securities Industry Trends 40, no. 2 (March 22, 2004), from cover page highlights. Ibid., p. 12.
  20. Homeowners who pay less than $400 in property taxes receive a check equivalent to their property tax bills.
  21. Andrew Haughwout, Robert Inman, Steven Craig, and Thomas Luce, "Local Revenue Hills: A General Equilibrium Specification With Evidence From Four US Cities," NBER Working Paper 7603, March 2000.
  22. Edmund J. McMahon, "What New York Has Gained From Tax Cuts," Civic Report No. 20, Manhattan Institute Center for Civic Innovation, September 2001.
  23. The bank tax is based on three alternative calculations, of which the bank pays the greatest amount.
  24. The UBT also functions as a form of indirect commuter tax – refuting the common argument that the city does not tax any commuter income.
  25. Jesse Edgerton, Andrew F. Haughwout and Rae Rosen, "Revenue Implications of New York City's Tax System," Current Issues in Economic and Finance, Federal Reserve Bank of New York, April 2004, Volume 10, No. 4.
  26. City of New York, Independent Budget Office, "Testimony of George Sweeting Before the City Council Finance Committee On the Tax Treatment of Coops and Condos," February 26, 2004.
  27. "3 Democrats and Mayor Vie for Third Party's Nod," The New York Times, May 12, 2005, p.B3.

 


Center for Civic Innovation.
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CB 47 PDF
PRESS RELEASE

SUMMARY:
Pricing the “Luxury Product”, an analysis on Mayor Bloomberg’s tax policy by Manhattan Institute Senior Fellow for Tax and Budgetary Studies, E.J. McMahon, delves into the Mayor’s tax record over the past four years. The report discusses how treating New York City as a "luxury product" has a net negative result for New York taxpayers and casts a cloud over New York’s future growth prospects.

Table of Contents:
Executive Summary
About the Author
Ghosts of tax hikes past
Change in course
Figure 1. City Taxes as a Share of Personal Income, 1971-2005
TAX HIKES SINCE 2002
The November 2002 tax blowout
Reshuffling the city tax deck
Stealth income tax hikes
Table 1. New York City Income Tax Rates by Tax Bracket
Washington to the Rescue
Can anyone here spell R-E-L-I-E-F?
Economic Impacts
Structural issues and skewed distributions
Figure 2. Corporate Tax Rates, 2005 Personal income tax: where the money is City income tax burden - heaviest at the top
Figure 3. New York City Personal Income Tax Rate* Effective (Post-Federal Deduction) and Statutory Top Rates on Wage Income 1975-2005
Table 2. The New York City Personal Income Tax: Who Pays How Much
Figure 4. Resident Personal Income Tax Share of Total City Tax Revenue 1975-2005 The skewed property tax
Table 3. Distribution of City Real Property Taxes by Property Class
Figure 5. Taxes on Prime Office Space in Major Urban Areas
SETTING SUNS?
Figure 6. Personal Income and Wage Taxes Top Marginal Rates in New York and Closest Neighboring States
Figure 7. State and Local Sales Tax Rates (as of July 1, 2005)
Conclusion
Figure 8. Estimated Burden of Major State-Local Taxes Families of Four at Different Income Levels in Selected Large Cities
Endnotes


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