Proposed Tax Hike Would Destroy Jobs
An income tax increase proposed this week by a majority of City Council members would cause New York to lose nearly 48,000 jobs, according to the Manhattan Institute’s tax policy analysis model.
Twenty-seven of the 51 Council members have signed a letter urging Council Speaker Gifford Miller to support a package of three “modest” tax increases, which they say would total over $2 billion, to help close the city’s $4.8 billion budget gap for fiscal 2003.
The Council members are calling for restoration of the commuter tax and of a portion of the stock transfer tax, which was effectively abolished more than 20 years ago. But the largest element of their plan is a proposal to raise the city’s top resident income tax rate, now 3.65 percent, by a full percentage point (to 4.65 percent) for New Yorkers with incomes between $200,000 and $250,000, and by two full points (to 5.65 percent) for all new Yorkers earning more than $250,000.
The increase would be equivalent to a whopping 55 percent income tax surcharge for those in the newly established top bracket. While proponents say the income tax hike would raise “over $1 billion,” the net increase would actually amount to some $1.23 billion, according to the Manhattan Institute’s NYC-STAMP model.
There were 71,050 New York City tax filers with adjusted gross income above $200,000 as of 1999, according to the city Finance department. Spread across this population, the proposed tax hike would work out to an average $17,298 per affected household.
In their letter to Speaker Miller, the Council members supporting the tax hike claimed that it would be “a fair, effective way” to help balance the budget—but they fail to acknowledge even the possibility that this would also jeopardize the city’s economic recovery.
Higher taxes = less economic growth
The economic disincentives created by the proposed income tax increase would lead to a loss of 47,916 jobs, the Manhattan Institute’s NYC-STAMP model estimates. This impact would be on top of an estimated loss of 10,733 jobs stemming from the Council’s recent decision to allow an existing income tax surcharge to revert to a full 14 percent. The city already has lost more than 100,000 jobs in the wake of the World Trade Center attack.
Taxpayers with incomes above $200,000 tend to have much greater discretion than most New Yorkers over how—and where—they earn their money. While most taxpayers are wage-earners, the higher brackets include a larger proportion of business proprietors, decision-makers and entrepreneurs, who customarily reinvest a portion of their incomes in their own firms and in the stock market. A significant city income tax increase will slow economic growth and reduce employment by making New York a less attractive place for these well-paid individuals to live and work, and by reducing the amount of money they spend and invest in the city.
The tax hike would further worsen the city’s competitive standing in two especially noteworthy ways:
Prior to this year, the last time the city enacted a large income tax increase was a little over a decade ago, when then-Mayor Dinkins imposed in quick succession a big property tax increase and two tax surcharges that represented a total income tax increase of more than 28 percent. These steps fed a downward economic spiral in which the city lost more than 300,000 private sector jobs, a tenth of its employment base. While the proposed tax hike would directly affect fewer taxpayers than those enacted in the Dinkins era, it is still the wrong medicine for what ails the city’s economy.
POSTED: APRIL 4, 2002