Angry New Yorker

Semi-Daily Rants from New York City's Angry Man

"As I know more of mankind I expect less of them, and am ready now to call a man a good man, upon easier terms than I was formerly." - Dr. Samuel Johnson, Boswell, Life of Johnson, Sept. 1783

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Friday, May 28, 2004
 
The Balance of NYC's Income Tax

[Ed. note - so let me get this straight. . . other cities depend more heavily on more regressive property taxes, while NYC looks more to its high, in comparison to other cities, income tax. And the point is?
The real point, not mentioned in the article, but present sotto voce none-the-less, is that NYC simply can't raise property taxes to parity with the 'burbs. First, beyond the political none-starter nature of any such proposal, many people stay in NYC due to the city's lower propery taxes -- which can easily be several, and sometimes tens of thousands of dollars less than those for a comparable house on the Island, where property taxes are, by any definition, outrageous. Second, should NYC property taxes ever reach parity, then a strong fiscal incentive to consider vacating the five boros would immediately come into play. Why? Well, boost NYC to the equivalent of the outrageous property taxes found in the surrounding suburbs and across the river in New Jersey (which has, on average, the highest property taxes in the country), and this, coupled with the demise of the commuter tax a few years ago might make an extra half-hour commute into the city seem like a reasonable trade-off to many. Ah! What tangled webs we weave.]

New York More Dependent on Income Tax, Study Says
By MIKE McINTIRE
The New York Times, May 28, 2004
New York City's tax base has shifted over the last 30 years, leaving it increasingly dependent - some say alarmingly so - on income and corporate taxes, as well as vulnerable to the boom and bust fortunes of Wall Street, according to a study by the Federal Reserve.

Other cities depend much more heavily on property taxes, which are typically more stable in generating revenue. The study found that while New York City relied more on property tax revenue decades ago, its tax burden has gradually shifted so that the portion of revenue derived from individual and corporate income taxes more than doubled, to about 34 percent, between 1970 and 2002.
* * *
The study does not take a position on any particular remedy. It offers several options to mitigate the boom and bust cycle, including increasing property tax rates and using periodic tax windfalls to lower debt.

The authors found that individual income and corporate taxes accounted for 15 percent of total taxes in 1970, and the remainder made up of property, sales and a variety of smaller taxes. By the late 1990's, income and corporate taxes made up 40 percent, even though rates had not increased significantly.

There are several reasons for the change, economists say. Income tax brackets are not adjusted for inflation, so that as incomes grow over time, more taxpayers are pushed into the higher brackets. In addition, the city's economy has grown since the 1970's, broadening the tax base.

Although property taxes are still the largest source of revenue, they have declined as a portion of the total to 38 percent in 2002 from 51 percent in 1977, according to the city's Independent Budget Office, a nonpartisan fiscal monitor. Before raising the property tax rate 18.5 percent in late 2003, the City Council had effectively kept it frozen through much of the 1990's, and growth in property tax revenues has been kept in check by caps on how much the city can increase residential taxes.

Because property taxes are not as vulnerable to economic swings, they are generally considered a more stable source of income. The Federal Reserve report found that while individual income and corporate taxes were plunging during the last recession, property tax revenues actually rose 6 percent.

Nevertheless, the Independent Budget Office reported in 2000 that as a percentage of its tax revenue, New York relied less on property taxes than any of the nation's nine other largest cities.

Experts differ on whether the city's balance of taxes is good or bad. George Sweeting, deputy director of the budget office, said one advantage to having a tax system sensitive to the Wall Street economy was that during boom times, revenue pours in and, if managed correctly, can be saved or used to lower debt.

"In some ways, it's good that we have a more diverse tax structure," Mr. Sweeting said. "Having a variety of sources is not automatically a bad thing."

Edmund J. McMahon, an analyst with the Manhattan Institute, a conservative policy group, said the Federal Reserve's findings showed that the city must rethink its tax structure to prevent one segment of the tax base - income tax revenue - from having an inordinate effect.

"Roughly a third of New York City's personal income taxes are paid by 13,000 millionaires, and when all those people have a bad year, the effect is multiplied," Mr. McMahon said. "It isn't just that they don't buy a Lexus or tip the doorman. They don't pay as much in income taxes."

Read the entire article here.

posted by anonymous at 9:29 AM

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