The last four years have seen a remarkable turnabout in tax policy of New York City. Considerable progress was made in reducing tax rates and the overall tax burden under former Mayor Rudolph Giuliani, from 1994 through 2001. But since 2002, the city under Mayor Bloomberg has raised taxes by up to $3 billion, two-thirds of which consisted of a record property tax hike.
The negative economic consequences of such large tax hikes were at least temporarily offset by the positive impact of a large federal tax cut that included especially large benefits both for New York residents and for Wall Street, the city's key industry. But as time goes on, the city risks paying a heavier price for its failure to hold down taxes. Moreover, the existing complexities and inefficiencies of the tax system have been exacerbated in the course of recent tax law changes, such as the $400 property tax "rebate" for homeowners.
Mayor Bloomberg has defended his tax hikes as the necessary price of maintaining essential services in what will always be a high-cost city. The question, however, is whether the price was far too high to begin with. In their bids to replace Bloomberg, the leading Democratic candidates in the 2005 mayoral race tended to focus on additional proposals for raising and redistributing the city tax burden, rather than on reducing it.
This report summarizes recent trends in New York City's tax policy, the shape of recent tax increases and their impacts, and the relative size of the tax burden. It also identifies priorities and prospects for change in the future.