New City Tax Hikes Raise Likely Job Loss Toll
New York City’s latest personal income and sales tax increases will result in the loss of an additional 18,250 private sector jobs in the city, and will raise $70 million less than expected, according to the Manhattan Institute’s NYC-STAMP tax model.
Including the latest rate increases, the negative impact of all broad-based tax hikes enacted by the city since the start of 2002 is now approaching 91,000 lost jobs, as estimated by NYC-STAMP. This includes 62,000 job losses linked to last year’s record property tax increase and 10,700 job losses resulting from a previous personal income tax increase.
The NYC-STAMP model, developed by the Beacon Hill Institute of Boston, Mass., uses standard statistical methods to estimate the significance of relationships between economic variables, such as private sector employment, and changes in the city’s income tax, sales, property tax and general corporation tax rates. The model’s findings stem from correlations based on a quarter-century’s worth of tax and economic data.
New York City has lost more than 200,000 private sector jobs over the past two years, including 5,400 in March alone. The NYC-STAMP estimates highlight the extent to which tax increases will hinder the city’s ability to recover from these losses in the years ahead.
Piling on the taxes
Under a bill approved by the state Legislature over Governor George Pataki’s veto, two new rates have been added to the top of the city’s income tax structure, which previously topped out at 3.65 percent. Retroactive to Jan. 1, income above $500,000 will be taxed at 4.45 percent, and incomes starting at $100,000 will be taxed at 4.25 percent. In addition, the city sales tax has been raised by one-eighth of a percentage point, or 0.162 percent.
The city expects these two tax increases to raise about $700 million in fiscal 2003-04. However, NYC-STAMP forecasts that revenue will fall at least $70 million short of that target, due to decreased economic activity and changes in taxpayer behavior resulting from higher tax rates.
The economic impact of city tax increases will be compounded by state tax hikes that, like the new city rates, were enacted by the Legislature over Pataki’s veto.
Retroactive to Jan. 1, including a parallel increase in the state income tax rate, New York’s combined state-city income tax rate will rise from 10.5 percent to 12.15 percent on taxable incomes over $500,000, and to 11.75 percent on incomes starting at $100,000 for single taxpayers and $150,000 for married couples.
The sales tax will rise from 8.25 percent to 8.625, including a 0.25 percent increase in the statewide rate on top of the 0.162 percent increase in the city’s own tax rate.
Because of its high concentration of upper-income households and businesses, the city alone will generate nearly half of the statewide income tax increase. Thus, the direct cost of the combined state and city income tax increase for city residents will approach $3 billion over the next three fiscal years. The rate increases are scheduled to expire at the end of 2005, but such “sunsets” have not always been honored in the past.
The total impact in New York City of all state and city tax hikes enacted within the past 18 months now totals $3.4 billion. With employment and economic output in the city still shrinking, these increases couldn’t come at a worse time.
POSTED: MAY 27, 2003