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New York Post

 

A Just Plain Terrible Tax Proposal

December 05, 2008

By E. J. McMahon

SAY this much for the "mobility tax": Unable or unwilling to find more cash in operational savings, capital cuts, or the farebox, the Ravitch Commission apparently tried to find the least-awful way to raise another $1.5 billion for the MTA.

The commission's proposed 0.33 percent tax on payrolls aims to generate a lot of revenue by imposing a low rate on the broadest possible base of wages paid in the 12-county MTA service area—including state and local government agencies, nonprofits and the self-employed, as well as private corporations.

In other words, the commission wasn't completely insensitive to the economic implications of yet another disincentive to earn, invest or hire in what's already the most heavily taxed region in the country.

But the tax is still a bad idea.

One problem is that, while the tax might seem tiny to start, that will just make it easier for politicians to raise it on the slightest pretext. And the MTA in the coming decade will be a veritable pretext factory.

The report says the tax "would be imposed on all employers within the region and would represent a deductible expense for federal tax purposes." That's just a technicality, though: Economists of every stripe have long recognized that payroll taxes are ultimately borne by employees.

Think of it this way: With a 0.33 percent payroll tax, every $1 million in wages and bonuses paid by an employer will now cost $3,300 more. So, if you earn $60,000 a year in the 12-county region, it's likely $198 of your next pay raise or Christmas bonus would instead go to the MTA capital program—even if you (and your boss) never go near a bus, subway or train.

The commision argues that this tax is the fairest way to spread the burden. After all, workers and business owners throughout the region all benefit to some degree from the presence of an extensive and well-maintained transit network.

Thing is, the MTA is already quite heavily supported by several major regionwide taxes—including a 17 percent surcharge on all business-income taxes, a 0.375 percent sales tax and added mortgage-recording taxes. It also gets more than half the petroleum-business-tax receipts from the state's mass-transit-operating-assistance fund, which is fed by motorists all over the state.

Finally, there's the fact that the Ravitch proposal only opens the door to a debate that could head off in any number of destructive directions. Local governments, school districts and non-profits (like hospitals) may resist being covered by the tax. If they get excluded, the rate will need to be higher to meet the revenue target.

Others will argue for making the tax more "progressive" by exempting, say, the first $50,000 in wages—in which case, the rate will have to be higher still. And the chairman of the City Council's Transportation Committee is already suggesting that the payroll tax be raised as an alternative to tolling East River bridges.

In other words, that "one-third of a point" tax could grow to well over 1 percent in no time.

Since the 1999 expiration of New York City's 0.5 percent commuter tax, which was paid directly by employees, there has been no payroll tax imposed anywhere in the state. Local payroll taxes are imposed elsewhere around the country—e.g., in many of the cities of Ohio, Pennsylvania and New Jersey. But local governments with payroll taxes in other states don't also impose local income taxes on both businesses and individuals, as New York already does.

To make matters worse, this now makes it four different wage- or income-tax proposals floating around the state Capitol. The others include:

* The commuter tax, which Mayor Bloomberg says he wants to revive.

* A potential hike in the city-resident income tax, which Bloomberg also has floated.

* An increase in the state personal income tax—which Assembly Democrats have passed twice, and which government-employee unions are pushing as a way to avoid the budget cuts that are now likely budget cuts next year.

Whatever emerges from this unwholesome stew is only likely to inspire greater "mobility" on the part of taxpayers who are already thinking it's time to get out of New York.

Original Source: http://www.nypost.com/seven/12052008/postopinion/opedcolumnists/a_just_plain_terrible_tax_proposal_142735.htm

 

 
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