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To Keep People In New York City, Cut Costs

by E.J. McMahon, Sep 29, 2003
 
 


Leaving New York
While some New Yorkers are leaving the city, citing bad schools, high housing costs or the daily stresses of urban life, analysts debate whether the exodus is anything alarming or unusual, and what to do about it.

Why New Yorkers Are Leaving:

The City Is Too Expensive
by E.J. McMahon

City Schools and Housing Are Inadequate
by David Kallick

New Yorkers Who Left:

Rondrae Hunter
A Frustrating Apartment Search

Allison Woods
Struggling with Strollers and Schools

David Bassine
Fear of Terrorism

Stefan Kochi
Bad for Business


The cost of living in New York City is 240 percent of the national average, according to one recent estimate. That’s not just the highest in the country. It's nearly twice as high as the next most expensive metro areas (Boston and Washington, D.C, in that order).

If you want to keep people in New York, the first thing you have to do is to reduce the staggeringly high cost of staying here. The single biggest factor driving that cost is a crushing state and local tax burden.

We have become so used to hearing about New York City’s high taxes that we have become sort of numb to it. But consider these statistical tidbits:

• New York’s overall tax burden is by far the highest found in any of America’s largest cities.

• Despite relatively low residential property taxes, the overall tax burden on New York City homeowners is the highest in the state.

• For households with incomes of $100,000 a year (middle class by New York standards) the combined state and local tax burden is 32 percent higher than the average for major cities.

• The commercial property tax is absolutely out of sight, reaching nearly $10 per square foot for prime space in midtown Manhattan. The only city that comes close is Chicago. In most other major cities, it is less than $5. In New Jersey, it is $3.

• The combined state and city personal income tax rate this year will reach a maximum of over 12 percent – highest in the nation, almost double the rate in New Jersey, and more than double the rate in Connecticut or Pennsylvania.

With the exception of the last item in the list, these comparative measures do not reflect the impact of the roughly $2.8 billion in city tax increases that have been enacted since Mayor Michael Bloomberg took office last year, or the $3 billion in state tax increases enacted by Albany this year.

Just because many New Yorkers do not directly pay these taxes, either because they are renters or because their incomes are below the median, does not mean they are unaffected by them. The impact of taxes is pervasive, rippling through every sector of the economy. High taxes ultimately drive down the number of new jobs created in the city and drive up the price of goods and services produced there.

Tackling this problem will require a constant, unrelenting effort to steadily bring down the cost of government at both the state and city levels. This is why it is so important for Mayor Bloomberg to continue pressing municipal labor unions for productivity concessions.

Beyond taxes, the most important factor driving cost is the price of housing in the city. This is a classic supply and demand problem, growing directly out of rent regulation and restrictive zoning and building codes. The answer is to stop treating housing as a socialized good, a government-funded entitlement. Clear away the dense thicket of regulatory barriers to building in New York, and let the market do the rest.

Beyond taxes and housing, improving city schools and doing even more to drive down the crime rate obviously are both crucially important to retaining residents. But if its economy is drowning in high costs, the city will lack the tax base to do those good things in any event.

E. J. McMahon is a senior fellow for Tax and Budgetary Studies, at the Center for Civic Innovation at the Manhattan Institute.

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