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Dark Tax Cloud Still Looms Over N.Y.C.


Dark Tax Cloud Still Looms Over N.Y.C.

February 1, 2007
Urban PolicyNYC

New Yorkers have every reason to be proud of the city's recent burst of development activity.

But the revival of New York after its dark days of near bankruptcy, sky-high crime rates and population loss may be blinding the city to a painful truth: Even today, businesses and people only locate here by choice—and for most, the cost of living and working in New York remains exorbitant.

Yes, as the international hub of key industries like finance, communications, media and fashion, the city has many intrinsic advantages. But the harsh reality is that, in an increasingly mobile world, our outlandishly high local taxes undermine New York's appeal to business, and its onerous development regulations make housing increasingly unaffordable for its workers.

Here's how serious the problem has become. At more than $4,000 per capita, the city's local tax burden—even after Mayor Bloomberg's proposed $13 billion in cuts—is more than four times higher than that of Chicago and Los Angeles, and twice that of Philadelphia and Boston. And as a harbinger of tax burdens far into the future, New York is the most heavily weighed down with debt, with a per capita obligation two to three times that of every major American city other than Washington.

Even within the metropolitan region, New York risks increasing competition from its suburbs. More seriously, a recent highly detailed international study by KPMG found New York to be at a serious "cost of doing business" disadvantage relative to every major international competitor city.

Overall high taxes are only part of the story. New York's local taxes overwhelmingly target its business base, in a strategy meant to pluck as many, feathers as possible from the goose that lays the city's golden eggs.

On top of biasing tax assessments against commercial property and imposing municipally rare taxes on corporations and banks, New York also taxes "commercial occupancy" (the business tenants of all these new developments), "unincorporated businesses" (the vaunted "creative class"), and hotels (the core of its tourism industry).

To realize the grand plans envisioned by the mayor and governor while keeping New York competitive, more is needed than the timid tax cuts being discussed. Here's what the city should do instead:

Starting now, New York should use its healthy budget surplus to substantially reduce the tax burden over the long haul, either by eliminating its most obnoxious business levies or by reducing its debt. The revenues generated by accelerated economic growth or lower debt service obligations will more than offset the foregone tax yields. At the same time, the city can make housing more affordable for its workforce by easing burdensome development regulations.

New York City's comeback has been remarkable. But it will quickly fade into history unless the city brings its tax and regulatory climate in line with its competitors.