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Stop the Rhetoric – Raise the Income Tax

by Glenn Pasanen, Apr 21, 2003
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Mayor Michael Bloomberg continues to think big. His executive budget for fiscal year 2004 offers dozens of sweeping changes, frightening millions of New Yorkers. The mayor would be well advised to follow the lead of City Council, which has offered a more realistic revenue plan. But the budget proposals and political pleadings by both the mayor and the council ignore a practical and equitable solution to the city's budget crunch.

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Faced with a $3.8 billion deficit and the Byzantine politics of Albany, the mayor has made two sets of cuts. Each seems more designed at scoring political points than offering real solutions.

One list details $600 million in budget cuts, many of which are already being made. This is intended to place blame on leaders of the city's municipal labor unions. In case anyone misses the point, one page of the mayor's presentation is devoted to a list, under the sarcastic headline "Expressions Of Support Of $600 Million In Savings By Leading Labor Leaders" (see ninth item, Section IV), of three comments by labor leaders. One quote reads, "If the mayor thinks I'm going to bail the city out, he's nuts..."

The other list of cuts – the so-called contingency plan with $1 billion in reductions – is designed as a special pleading to the Albany trio of Governor George Pataki, State Senate Majority Leader Joe Bruno, and Assembly Speaker Sheldon Silver. It is a blunt instrument – eliminate homecare for seniors, do away with after-school programs, close all summer pools, lay off another 10,000 city workers, etc.

In proposing this, the mayor makes two appeals: one for more expenditures, the other one for more revenues. In the case of expenditures, the mayor presents a powerful case that the governor's proposed cuts in state aid to the city must be restored, especially the $753 million public education reduction. Since other state school districts also fear the loss of aid from Albany, there is obviously a deal to be struck here, particularly with Bruno, whose Republican constituents worry about the higher local property taxes that would be needed to make up for the shortfall in state help for education.

But the mayor's other plea – for revenues – is muddled. He again asks for state authorization of a new commuter income tax. The commuter tax Bloomberg proposed in November would have had commuters pay the same personal income tax rate as city residents. But the top rate would have been lowered by nearly 40 percent over three years. In other words, commuters would pay for a substantial tax cut for city residents. And in revenue terms, the city would be worse off over time.

This idea met prompt and nearly universal rejection in Albany. Despite that, the mayor's budget released last week calls for a much bigger commuter tax, although Bloomberg provides no details on it in his publicly released budget documents. The three-year $1.8 billion tax plan has become a three-year $4.6 billion tax plan – still requiring Albany's approval and still having commuters paying for a tax cut for residents. This is an idea that Albany will almost certainly reject.

The mayor must realize this. The fact that he continues to make his commuter tax proposal with only seven weeks until the budget is due makes the budget negotiations highly uncertain.

POLITICAL REALITY

In its recent response to the mayor's preliminary budget, the City Council has introduced some revenue plans that could provide a clue to what happens next.

The council suggests a much smaller commuter tax than the mayor's. It would bring in nearly $1 billion. Unlike the mayor's plan, the council provides no tax break for city residents. And its proposal includes a clever $69 million "reverse-commuter" reimbursement to New York State suburban communities where city residents work.

To bring in more money, the council and the mayor agree on increasing the tax on absentee landlords of one-, two- and three-family homes. An estimated 75,000 such landlords enjoy the low property tax rates of owner-occupied houses, but use the homes as commercial properties. The council would impose a 150 percent surcharge on the absentees, raising $263 million in 2004; the mayor is proposing a much lower surcharge that would raise $44 million.

The council would use some of the revenues from its tax to provide property tax relief to low-income seniors who own their homes. A second program would indirectly assist low-income seniors who rent apartments in buildings not covered by rent regulation.

But the council, like the mayor, continues to ignore the elephant in the room - an increase in the personal income tax.

Any equitable program to bring in more revenues would start with the personal income tax, a modestly progressive tax that puts more of the tax burden on high-income New Yorkers than less affluent ones. The current top rate - 3.65 percent - is well below the top rate from 1991 to 1998 of 4.46 percent. This cut has helped reduce the city tax burden – the total city taxes paid divided by total city personal income – to 6.5 percent in 2002 from a high of 10.4 percent in 1977.

Adding 10 percent to each resident's New York City personal income tax bill would raise more than $500 million. Increasing the top personal income tax rate to 4.65 percent would bring in almost $600 million. Together with the council's modest commuter tax and $200 million from its absentee landlord surcharge, either of these two measures would bring in an additional $1.7 billion to $1.8 billion. That would make both the $600 million in cuts and the $1 billion "doomsday plan" unnecessary.

Any increase in the city income tax requires approval from Albany. But the legislature and governor are far more likely to approve a request for a hike in the personal income tax for city residents than a commuter-funded tax cut for residents. Until city officials seriously consider this solution to the city's difficult financial problems, they will only compound the anxiety and confusion now rampant in our city.

Glenn Pasanen, Gotham Gazette's finance columnist, teaches political science at Lehman College of the City University.


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