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Taxing the Rich: An Idea Whose Time Has Come?

Gotham Gazette

The Place for New York Policy and politics

Citizens Union
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Photo from the Library of Congress
Henry Clews, a wealthy Wall Street financier and economic consultant, in 1910

Since the economic collapse in the fall, Americans have acquired a taste for watching CEOs squirm. They lapped up the scenes of executive sweating before Congress while being grilled about multimillion dollar bonuses and cheered in knowing their outrage had forced the heads of the major American car companies to abandon their private jets and drive to D.C. for congressional hearings. There's even a Brooklyn artist, Geoffrey Raymond who takes his portraits of CEOs to Wall Street to let passersby scrawl nasty messages on them.

So, not surprisingly, polls suggests that raising the income tax on the wealthy, popularly known as a Millionaires Tax, has strong support. Quinnipiac polls have found a steady 80 percent of New Yorkers in favor of such a tax hike. Labor and education groups are pushing hard for it using television campaigns and grassroots initiatives. With such strong popular support, a Millionaires Tax seems imminent.

Some legislators seem to have gotten the message. The Assembly is expected to vote to increase the tax on affluent New Yorkers. Assembly Speaker Sheldon Silver has stated that he won't "allow the burden of addressing the economic crisis to fall disproportionately on the backs of our already overburdened working families."

Yet, the plan has not attracted the support of a majority of senators, and despite some indications he might compromise, Gov. David Paterson still officially opposes the tax hike, preferring a mixture of budget cuts, some new taxes and increases in other taxes, such as the sales tax.

Higher and Highest

Although a number of different proposals for a millionaire tax have been discussed the most popular is the Fair Share Tax Bill that has been supported by advocates such as the Working Families Party and put forward in the Senate by Sen. Eric Schneiderman on Feb. 9. The Fair Share Tax Bill would increase the current 6.85 percent income tax rate to 8.25 percent for individuals who make more than $250,000 a year. Those making more than $500,000 a year would see their income tax rise to 8.97 percent, and those making more than a million a year would be taxed 10.3 percent. Currently everyone making over $40,000 a year -- from a schoolteacher to Michael Bloomberg -- pays the same 6.85 percent income tax rate.

Schneiderman's proposal was co-sponsored by 18 other senators. However, Senate Majority Leader Malcolm Smith opposes raising the tax rate for the wealthy. Smith, who previously called the measure a "last resort," said he believes such a tax would drive more affluent residents out of the state.

"During difficult economic times the senator is not in favor of raising taxes as a revenue generator," Smith's spokesperson, Austin Shafran, said. He added, however, that since there is support for the measure in the Democratic caucus, Smith will not stifle debate of the issue. "This fair share tax proposal will be openly and honestly debated on the floor of the Senate," he said.

Paterson has echoed Smith's sentiments, agreeing that a tax increase on the rich would be a "last resort." But with flagging poll numbers and public opinion heavily in favor of such a tax, spectators wonder if Paterson is wavering on the issue. At a banquet hosted by the State Association of Black and Puerto Rican Legislators last week Paterson said, "To those of you who are not here, who think you are too wealthy or too influential or have too great of a title to be part of New York's budget-balancing formula, let me make you aware that every New Yorker will share in the sacrifice to get this budget balanced." Paterson spokesperson Errol Cockfield reportedly told reporters afterward that Paterson's statement did not reflect a change in position.

Taxing, Not Cutting

Critics of the tax such as E.J. McMahon, director of the Empire Center for New York State Policy, said that unions representing public employees advocate the millionaires tax because they reject what he views as reasonable cuts to address the budget crisis, such as postponing increases in wages or benefits.

"The top one percent paid 40 percent of the taxes in the state in 2007," said McMahon. "People with a pie slice view of the economy think, 'Hey, if we jack up the rate 50 percent the rich won't notice it.' They think, 'Oh they have money! Let's get it.'"

According to McMahon, the state has relied on taxing the wealthy for too long. He noted that the reason there is such a budget gap this year is because the state got a large percent of its revenues from Wall Street and those revenues have plummeted. An increased tax on the rich, who have already lost great amounts of their wealth due to the market crash and who have "volatile" incomes is not a smart way to patch the budget deficit, he said.

Karen Scharff, executive director of Citizen Action, a group that strongly advocated Fair Share Tax Reform, disagreed. "It comes down to whether we should ask wealthy New Yorkers to pay a small amount in additional taxes to protect average New Yorkers facing job losses, foreclosures and school cuts," she said.

Scharff said that if one percent of New Yorkers paid 40 percent of the taxes that's because "they have 40 percent of the income in the state." As she sees it, tax rates on the rich have steadily been reduced for years and a small increase now is "only fair."

Schneiderman said his bill is not simply the product of unions but is supported by a "state wide coalition." He acknowledged that there will have to be cuts in the state budget but called his tax proposal "fair and a good way to raise money." It is time, he said, to stop "redistributing wealth from the working family to the rich," and with President Barack Obama having campaigned on the idea of a progressive tax, Schneiderman said he thought the mood is right to return a progressive tax to New York.

In the end, Scharff said, she expects to see Schneiderman's proposal taken into consideration during budget negotiations between the Senate, the Assembly and the governor. She thinks Smith and Paterson will bow to public pressure on the proposal and will change their stance.

In Schneiderman's view, New York's politicians have a history of "crying wolf" and suggesting cuts before ultimately restoring the spending because of public outcry. He said Paterson has been trying to hammer home the gravity of the situation by stressing the need for major budget reductions, but in the end Schneiderman thinks a tax increase on the wealthy will be part of the solution to New York's $14 billion dollar budget deficit.

The Opposition in the Senate

Given the Democrat's thin majority in the Senate, Smith's position may hinge somewhat on his members. Senators Jeff Klein and Pedro Espada Jr., who represent middle class and working class districts in the Bronx, have stood, along with Smith, in the way of the millionaire's tax as well as rent control laws that would benefit their constituents. "What Smith, Klein and Espada won't acknowledge is the tiny percentage of households in the city that earn $1 million a year, or even $250,000, after taxes," Juan Gonzalez wrote. "State records show a mere 393 households in Smith's Queens senatorial district reported incomes above $250,000 in 2005. More than 93,000, or 99.6 percent, were below that figure."

Scharff said that organizations like hers that helped the Democrats win their majority in the Senate will pay attention to where these senators' allegiances lie. She thinks most voters will pay attention as well. "I find it very puzzling that New Yorkers overwhelmingly voted for Obama and his progressive agenda, they sent a message to politicians and voted for change and yet somehow in New York it feels like we are going backward," she said. "New Yorkers won't allow it."



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The Place for New York Policy and politics

Gotham Gazette is published by Citizens Union Foundation and is made possible by support from the Robert Sterling Clark Foundation, the John S. and James L. Knight Foundation, the Altman Foundation,the Fund for the City of New York and donors to Citizens Union Foundation. Please consider supporting Citizens Union Foundation's public education programs. Critical early support to Gotham Gazette was provided by the Charles H. Revson Foundation, Rockefeller Brothers Fund and the Alfred P. Sloan Foundation.

Creating Jobs, and Filling Them

By Bonnie Potter

7 October 02

For most of the 1990s, New York City demanded that poor people get a job -- any job. Even during the economic boom, this policy neglected the needs of many businesses and low-income New Yorkers. But now, with increased unemployment, the city must go beyond simply filling jobs and adopt a series of policies to spur economic growth and train workers to meet the needs of growing industries.

The city's unemployment rate of 7.6 percent is a full percentage point higher than it was before the World Trade Center attacks. That rate triples and quadruples for people who are 16 to 24 years old, or who have criminal records, or who are mentally or physically disabled, or who can not speak fluent English -- in short, for those people most likely to be poor.

But make no mistake. Unemployment is not limited to the poor. Most New Yorkers have a relative, friend or acquaintance who is out of a job -- blue collar and white collar workers with academic credentials and long work histories and even individuals of substantial means, casualties of layoffs in the dot.com, banking and securities industries.

While New York's current unemployment is a result of a recession compounded by both the direct and indirect impacts of the World Trade Center disaster, a number of longer standing structural factors complicate the ability of the unemployed to enter, or re-enter, the labor force. Globalization has resulted in sending many lower skilled jobs to lower wage workers overseas. Initially, the garment industry was affected; now this trend extends to payroll and parking-ticket processing. The continual development of new technology means that many workers -- from information technology technicians to security guards and even burger flippers -- need greater skills to get new jobs and must then constantly improve those skills.

At the same time, many New Yorkers are less prepared than ever before for the jobs that do exist. Thirty percent of New York City high school students do not graduate, and even many who do lack basic job skills. Those seeking work also include many people who might once have been considered unemployable, but today, because of changes in the welfare law, need to find jobs. Tens of thousands of immigrants, many with only rudimentary knowledge of English, also are seeking work.

Because of the mismatch between workers and jobs, city residents filled only 17,000 of the 82,500 new jobs created in New York City in 2000, according to the Daily News.

While Seattle, Tucson, Austin and other cities sought to address such problems, New York largely neglected economic development and job training for a number of years. Former Mayor Rudolph Giuliani and his human resources administrator, Jason Turner, tended to view job training as "a means for poor New Yorkers to continue dependence and put off getting a job," David Fisher of the Center for an Urban Future wrote in Gotham Gazette earlier this year. While many people did find work during the boom, Fisher said, this approach "did nothing for the hundreds of city employers starving for skilled workers."

Now, of course, the economic boom has ended. The Bloomberg administration can stand by and wait for the "market" to end the lingering recession and address the effects of the World Trade Center attacks. But at a time when unemployed individuals can no longer count on federal welfare benefits, that would be unconscionable. At a time when even middle class workers and professionals are being laid off in large numbers, it would be politically unwise. And at a time when the city's economy is foundering, such inaction could encourage more firms to leave the city for the suburbs and beyond.

New York City needs a comprehensive economic development strategy to attract and keep jobs in the city and a workforce strategy to ensure that city workers can fill those jobs. The city has the tools, the resources and the funding to develop and implement these strategies. But too often the existing programs and services are underused and poorly coordinated.

For starters, the administration needs to place responsibility for overall policy affecting both economic and workforce development with one deputy mayor. Creation of such an office would centralize policy making in these two areas, recognizing that one cannot work without the other.

Many city agencies, including those responsible for education, economic planning, business services, social services and job training, play a role in training workers. The deputy mayor would coordinate the efforts of the various agencies and develop plans to make full use of some $300 million available annually for such programs. This includes money from the Temporary Assistance to Needy Families program, the Workforce Investment Act and other funds.

To keep jobs in New York, previous administrations did little more than give tax breaks and other subsidies to firms threatening to leave the city. Instead, the city should address the needs of emerging industries as is being done by many other cities and states around the country. Arizona, for example, created a coalition of business chief executives, economic development officials, university presidents and community leaders that identified the optics industry as a small but growing sector that could create higher paying jobs. As a result of a collaborative effort that developed a strategic plan to meet the specific needs of that industry, Tucson's "Optic Valley" revenues were about $750 million in 1999, and 54,000 jobs were created in an industry that pays workers an average of about $47,000 a year.

Perhaps most importantly, industries have to have good workers. Under the direction of the deputy mayor, the city should identify what types of workers companies need now and in the future. Then it must develop education, training and support services to help potential workers meet these needs, and create ways to ensure that employers and job seekers connect with one another.

To take a current example, millions of dollars will be pouring into the city for redevelopment of lower Manhattan. But the construction industry may not have enough skilled workers for the rebuilding effort. The new deputy mayor would assess the need for different kinds of workers and devise a plan to train job seekers to fill those positions.

Most employers expect workers to be high school graduates, have good reading, math and communication skills and "good" attitudes, and be able to work with others, get to work on time and dress appropriately. The school system has to ensure that students know how to meet these requirements.

New York City has an array of community colleges and job training and employment programs. Yet city rules and contracting procedures often frustrate the ability of these programs to provide high quality training. To remedy this, the city should streamline contracting procedures and help community colleges and job training programs be more responsive to what the labor market needs.

Lastly, the city has the resources to more effectively link the unemployed -- and underemployed -- to existing employment. Under the federally mandated Workforce Investment Act, funding exists for the creation of a "one stop" program, through which job seekers can get information about job openings, career guidance and education, and employers can find qualified workers.

While such reforms will not replace all the jobs lost due to the recession and the World Trade Center attacks, a coherent economic development policy could begin replacing at least some of those jobs. And an effective workforce development policy would ensure that, when those jobs become available, New Yorkers know about them and have the skills to fill them.

Bonnie Potter is executive director of the New York City Employment and Training Coalition, an association of community colleges, union-affiliated training programs and other groups involved in workforce development.

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Gotham Gazette the Place for Politics and Policy

Gotham Gazette is published by Citizens Union Foundation and is made possible by support from the Robert Sterling Clark Foundation, the John S. and James L. Knight Foundation, the Altman Foundation,the Fund for the City of New York and donors to Citizens Union Foundation. Please consider supporting Citizens Union Foundation's public education programs. Critical early support to Gotham Gazette was provided by the Charles H. Revson Foundation, Rockefeller Brothers Fund and the Alfred P. Sloan Foundation.

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