Neglecting Tomorrow's Jobs
THE best question about the city's new $60 billion bud get, approved Tuesday by the mayor and City Council, is this: Does it make New York more competitive, relative to other cities?
The answer: Not really.
First, the good news. New York has a more than $4 billion surplus, nearly 10 percent of its city-funded budget. Taxpayers will get nearly a third of that back. A billion will go to temporarily cut property-tax rates, so most homeowners won't see their bills jump (this year, at least) even as their property values rise. The city will also end its sales tax on clothing and offer some modest, permanent business-tax credits, $75 million or so, for small-business owners and independent contract workers.
Most of the rest of the surplus will go toward paying debt, saving money in future years.
And next year's budget will expand by a downright modest amount by Bloomberg-era standards: City-funded spending rises less than 5 percent, against an expected inflation rate below 3 percent. By contrast, spending jumped more than 6.5 percent over the past year - and outpaced inflation more than two-fold over Bloomberg's first five years.
The mayor also deserves credit for rejecting one especially wrong-headed proposal by City Council Speaker Christine Quinn: a $300 "renters' tax credit" for low- and middle-income apartment dwellers. That would be just a giveaway - renters don't pay property taxes, their landlords do. (Plus, many renters already benefit from the state's regulation of their rents.)
It's also hard to argue with the mayor's agreeing to spend a 10th of one percent of the taxpayers' money to keep branch libraries open six days a week. Hopefully kids will go to the libraries, educate themselves, grow up to make a lot of money, and call for tax cuts . . .
But here's the bad news: While a temporary property-tax cut is better than no tax cut at all, it does nothing to make New York more competitive against other cities.
All cities and towns levy property taxes, and ours aren't particularly high - about $3,000 for single-family homes and $6,500 or so for condos. In the surrounding suburbs, these levies hit five digits.
Bloomberg's property-tax trim might be a nice gesture, but it won't do anything to encourage new jobs, or new people, to the city. The real problem is the city's income taxes, both for people and businesses.
New York City is unique in levying a tax on its residents' income, for a total of about $7.5 billion next year. Of America's 10 biggest cities, only three, including us, have an income tax, and of the 10 fastest-growing cities, none does.
And the city will rake in $5.6 billion next year in corporate, banking, and small-business taxes - but most other cities have modest, if any, business taxes. Of the biggest 10 U.S. cities, only four (including New York) have business taxes to speak of; of the 10 fastest-growing cities, none does.
What about international competitors, like London, Dubai and Dublin? Trader Monthly just did a study on the best cities in the world to trade securities in. The magazine notes that traders love New York for its human and financial capital as well as for its nightlife - but the study gave a 20 percent weight to taxes, and warned readers of New York's "deadly tax trifecta: federal, state, and city income levies."
New York still came in third of 50 cities, behind Chicago and London - but it's something to worry about when wealthy, mobile traders complain that New York's taxes are unaffordable.
City policymakers might say, Well, so what? The rich traders, private-equity managers and hedge-fund titans don't seem to mind our high taxes; they're not going anywhere, and the city has tons of money.
But that's pretty much the attitude General Motors took back in the mid '90s. Back then, GM was raking in cash from the sales of gas-guzzling SUVs, because of a happy economic accident - gas prices were low. So it didn't really listen to worries that customers wouldn't want to buy such trucks forever - and that it would eventually have to deal with its multibillion-dollar pension and health-care problems while trying to compete with other, smarter companies to sell vehicles it's not so great at making: fuel-efficient small and mid-sized cars.
Gas prices skyrocketed, of course - leaving GM deep in a hole, with no obvious way out.
New York has done so well lately in part because of another circumstance which could prove to be a happy accident: years of low interest rates. If rates head up (or Wall Street otherwise stalls), New York may be in a similar jam.
If the crunch comes, it will be painfully obvious that, for all New York's success in keeping big, seven- and eight-figure jobs in the city, it hasn't been so good at competing with other places to keep five- and six-figure jobs. The companies and people who create such jobs care too much about taxes to locate their businesses here.
The best thing for New York, then, would be for the city to spend some of its surplus on an across-the-board cut in the city's 3.65 percent personal-income-tax rate and, in some cases, nearly 9 percent business-income tax rate. Then we could start to modernize pension and health benefits for city workers - which cost about $13 billion a year - so that we can keep the tax cut in future years.
The idea is simple: Cut taxes on job creators, and create jobs
Original Source: http://www.nypost.com/seven/06152007/postopinion/opedcolumnists/the_budget_bad_news_opedcolumnists_nicole_gelinas.htm