Threatened Tax Surcharge Hike Would Cost City 10,700 Jobs
Reimposing the full 14 percent surcharge on New York City’s resident income tax will cost New York’s battered economy 10,700 badly needed private sector jobs, according to the Manhattan Institute’s tax policy simulation model. As a result, our model indicates the revenue gain from a restored surcharge will be about $30 million less than has been projected.
The City Council’s inaction on the surcharge in December did not amount simply to the shelving of a prospective cut in the surcharge. New York residents were already paying income taxes at reduced rates this year, as shown in the table below. Therefore, by deciding not to extend the surcharge reduction which it had approved just six months earlier, the lame-duck Council was giving its approval to a tax increase for all New Yorkers starting in 2002. This is the first city tax hike in 10 years. And its impact will be regressive, hitting lower-income taxpayers harder, on percentage basis, than high-income taxpayers.
Over the next few months, Mayor Bloomberg and the new City Council have a narrow window of opportunity for keeping faith with taxpayers by extending the surcharge reduction on the original schedule. To be sure, there is a tradeoff here: Failing to extend the cut will close a small portion of the budget gap, but only at the price of hobbling the City’s economic recovery from the September 11th attack.
New York City Resident Income Tax—Married-Joint Filers
* Planned rates reflected in enacted 2001-02 city budget and Mayor Giuliani’s November financial plan modification.
** If no action is taken to extend surcharge reduction beyond 2001. Number reflects tax hike on maximum amount in each bracket. Taxpayers falling into multiple brackets add the maximum for each relevant bracket to obtain their total tax hike.
*** Increase depends upon how much over $90,000 the taxpayer earns.
As shown above, for a taxpayer with $90,000 in taxable income, restoration of the full surcharge would represent an actual tax increase of $235 compared to 2001 law, and an increase of $283 over the planned 2002 rates reflected in the enacted 2002 city budget and the mayor’s November financial plan modification.
ABOUT THE TAX MODEL
To measure the impact of city taxes on key economic variables such as employment, the Manhattan Institute joined with the Beacon Hill Institute at Suffolk University in Boston, Mass., to develop a New York City variant of a proven econometric tool—the State Tax Analysis Modeling Program (STAMP). In September, the Institute issued a report showing that tax cuts had been responsible for about one-quarter of the city’s job growth since 1997. The projected change in employment reflects the impact of tax increases on decisions by businesses and individuals to work and invest in New York. A copy of the full report on our tax model can be downloaded via the Internet.
POSTED: JANUARY 17, 2002