IN yesterday's State of the City Address, Mayor Bloomberg launched one sorely needed government initiative: $1 billion in tax relief. But Bloomberg's specific tax-cut proposals aren't the most efficient engines of growth for New York's economy.
The centerpiece of Bloomberg's plan is a $750 million, 5 percent cut in all property taxes, benefiting owners of commercial and rental properties as well as individual homeowners. Bloomberg will couple this across-the-board rate cut with a continuation of his $400-a-year property-tax "rebate" for homeowners.
The mayor deserves credit for using some of this year's $2 billion budget surplus - a product of record Wall Street profits - to give the taxpayers who actually fund the city's $55 billion budget some relief, especially since the same taxpayers suffered an 18.5 percent property-tax hike to close budget deficits five years ago. But one problem with the mayor's property-tax cut is that it's temporary.
Bloomberg proposes only a one-year cut. He said yesterday, "It would be great if we can extend this in the years to come, but we can't know that we'll be as fortunate in the future with our revenues and expenses so right now it would not be fiscally sensible to commit to doing so."
Due to this caveat, while homeowners will no doubt put their savings to good use, New York's economy won't benefit from this cut as much as it could.
Why? Commercial-property investors and their tenants, as well as rental-property investors, will still have to budget new projects or renovations using the higher tax rate, since there's no guarantee the savings won't vanish next year.
If Bloomberg is set on property-tax cuts, he'd do better to at least enact a permanent tax cut - and then pledge to keep spending permanently in line to pay for it. But what the city's property-tax structure really needs is complete reform - rental-property owners and condo residents, for example, now pay far more than their fair share of property taxes, pushing costs up for free-market tenants and owners alike.
And in fact, to spur private investment in the city's economy, an income-tax cut would be better than a property-tax cut. A permanent cut in the city's top 3.6 percent income-tax rate, even a modest one, would have two positive effects.
First, it would encourage the creation of the new jobs the city constantly needs. Second, it would reduce New York's dangerous dependence on volatile tax revenue from Wall Streeters. These traders and others directly provide more than a fifth of city in- come-tax cash - but their incomes tend to fluctuate from year to year, creating wild swings in the city's annual surpluses and deficits.
The mayor did propose a second tax cut that can be put to good use by New York's economy. Bloomberg said he'll ask the City Council to reduce the city's unique double taxation of small-business owners by cutting the unincorporated business tax, which brings in about $1.3 billion annually.
Because of this tax, New Yorkers from tax accountants to hairdressers to individual-investment advisers must first pay taxes on money they earn at the business level - and then pay again, via personal income taxes.
The mayor would reduce this tax, thus encouraging more ground-up investment in the city's economy. Unfortunately, he'd cut it through new deductions and credits. Instead of adding complexity to the tax code, the mayor should just slash the rate of the tax across the board, keeping things simple for everyone.
(Same story for another cut Bloomberg has proposed - new targeted credits for businesses that pay the general corporate tax: he'd do better to offer a straightforward tax-rate cut here, too.)
Finally, in contrast to his other proposals, the mayor does offer one simple, straightforward, permanent tax cut: He'd eliminate the city's sales tax on clothing on items above $110 (there's already no tax on cheaper clothing). Bloomberg rightly realizes that the city's luxury-clothes retailers are at a competitive disadvantage when compared to New Jersey, which already levies zero sales tax on clothing.
If the mayor is successful in working with the council to eliminate this tax, everyone will understand: New York is a great place to buy clothes.
The mayor should propose other simple, bold, permanent tax cuts that would say the same thing to prospective business owners and workers. That said, New York is lucky that it doesn't have a mayor who proposes to simply spend this year's ephemeral budget surplus on a politically popular new government program, without thought to future budget deficits.
And it's possible that the mayor will get better at cutting taxes in the future - he hasn't had any practice.
Original Source: http://www.nypost.com/seven/01182007/postopinion/opedcolumnists/make_nyc_tax_cuts_permanent_opedcolumnists_nicole_gelinas.htm