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Clueless Execs


Clueless Execs

April 17, 2003
Urban PolicyNYC

You know you're in Never-Never Land when members of a leading business group clamor for higher taxes. But that's exactly what has happened in New York City: A group of high-powered executives, led by financier Henry Kravis and developer Jerry Speyer, recently prepared a letter urging Gov. Pataki to approve a commuter tax for Gotham.

Only an 11th-hour intervention by the governor prevented the business group from releasing the letter—at least for the time being.

What could have led high-powered executives and the group they chair, the Partnership for New York City, to contemplate calling for tax hikes, when in all other cities similar groups are the first line of defense against such moves?

Well, for one thing, New York City is home to the kind of executives not found in your typical Chamber of Commerce—financiers whose global businesses often aren't strongly linked to the local economy. Indeed, many of these "world-class" execs seem to have little first-hand experience with the effect that the city's high taxes have on ordinary citizens and businesses.

Gotham's recent property-tax hike, for instance, falls especially hard on middle-class homeowners, small and mid-sized business owners and operators of low-margin businesses that must constantly struggle to squeeze out a profit in New York. Yet the Partnership did nothing to oppose that tax increase, staying deafeningly silent on the matter.

The corporate chieftains are now arguing for a commuter tax as the least painful levy that the city could impose. Yet they're again displaying a blissful ignorance of the reality most New Yorkers face. They argued in their proposed letter to the governor that the new tax wouldn't harm their employees: "We don't think it will cause great hardship or lead to significant job losses," the letter said, adding: "As employers, we represent most of those commuters who will be affected by this tax."

Those sentiments are not only presumptuous—they are wrong. Worse, they show a profound misunderstanding of New York's economy. Small and mid-sized businesses employ up to half of all workers in the city's private sector, so there is no way that a handful of CEOs can represent "most" of those whom the new tax will hit.

Moreover, the wealthy execs now backing higher taxes seem to have little sense of how much an extra $500 to $1,000 a year in taxes will harm their own employees—especially when many of these workers are facing property-tax increases in their own hometowns, as well as subway and railroad fare hikes, that together will add upward of $1,000 to their yearly expenses.

Ignorance about how New York's high taxes harm the local economy is just one of the problems. Another is that New York's big-business community remains perhaps the most timid and politically correct in the nation. A number of members of the Partnership, for instance, objected to the letter supporting tax increases—but none would go on the record saying so.

These executives seem to have little empathy with middle-class workers or struggling business owners. Instead, they fear being seen as grasping, uncompassionate capitalists, unwilling to lay their tribute on the altar of Gotham's dysfunctional welfare state.

Recently the Partnership even eliminated "chamber of commerce" from its name, saying that the group tries to "encourage job creation and economic growth, rather than advocating for industry or business interests"—as if economic growth could occur without individual businessmen pursuing their economic self-interest.

Nothing shows the group's true tendency more clearly than an incident during the Giuliani years, when City Hall officials castigated the Partnership for not lending its voice in support of tax cuts. One deputy mayor was quoted as asking: "Is it a business advocacy group, or is it a social-welfare group?"

The lofty detachment of many of the city's corporate chieftains from the sharp-penciled realities of Gotham's economic life helps explain why New York has evolved into one of the most heavily taxed, heavily regulated business environments in the country, and why its government spends more per capita than virtually any other American city.

Over the years, there have been few effective business voices arguing for fiscal restraint and pro-growth tax policies. Instead, the city specializes in job-killing taxes—taxes that, in one study's estimate, have cost Gotham up to 1 million jobs.

In the last 40 years, New York City's economy has been stuck in a cycle of booms and busts that never leads to any secular growth. Consequently, while the national jobs economy has doubled in size, the city's economy has fewer jobs today than it had 40 years ago.

Some of New York's business leaders have done very well for themselves during that time—but as a community they have failed their own employees and other aspiring opportunity seekers who might have benefited from a more robust climate of job creation—such as New York historically boasted when it was a place where the streets were paved with gold for so many immigrants and others.

Likewise, the business community's leaders, with some notable exceptions, have also failed the city's small businesses and struggling entrepreneurs. The recent incident with Gov. Pataki is just another sign of that flop.

Malanga is a contributing editor to the Manhattan Institute's City Journal.