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Bush Tax Cuts and New York


President George W. Bush's tax cuts may well wind up the biggest legacy of the Bush administration. Their fiscal impact on the nation and New York has already reached startling proportions. For example, Citizens for Tax Justice, a research and advocacy group founded in Washington D.C. 25 years ago, estimates that the tax cuts, along with the massive borrowing needed to pay for the cuts and increased defense spending, will add $3.8 trillion to the national debt over six years. New York State's share of that new debt will be about $260 billion.

The tax benefits to individuals are huge -- over six years the country's taxpayers will receive over $1 trillion in tax cuts, with New Yorkers receiving about $78 billion of that. But the money goes disproportionately to the richest Americans, dramatically increasing an already large gap between the rich and non-rich in the nation and especially in New York.

Since the rich are less likely to spend their savings than lower-income Americans, the tax cuts will not stimulate the economy, according to the Citizens for Tax Justice. In addition, the new debt-related expenses and lost revenues will create major federal budget problems.

TAX CUTS AND THE $10 TRILLION PROBLEM

The Bush tax cuts began in 2001, with lowered federal tax rates and the expansion of several different tax benefits over 10 years. As the Tax Policy Centerrecounts, in 2003 Bush pushed through Congress a new round of tax cuts, introducing capital gains and dividend tax breaks. He also succeeded in accelerating several provisions of the 2001 tax cuts, such as tax rate reductions, marriage penalty relief, and the child tax credit.

It is the collective impact of these tax cuts that Citizens for Tax Justice traces for national and state impacts. The additional $3.8 trillion deficit by 2007 is just the beginning. In another study (in pdf format), Citizens for Tax Justice uses data from a Congressional Budget Office report to project an annual federal budget deficit of over $1 trillion a year by 2013.

That adds up to a tripling of the national debt a dozen years after George Bush took office, from $4.5 trillion to $14.1 trillion. Thus Bush would be accountable for almost $10 trillion in new debt. (These estimates are far higher than those by the Bush administration, because their assumptions are different. They assume, for example, that projected expenditure cuts won't happen, and that tax cuts will not "sunset.")

In the shorter term, according to Citizens for Tax Justice, the first four years of the Bush term will add up to $2.3 trillion in deficit spending, two-fifths of which is attributable to the tax cuts, and most of the rest to the "lousy economy."

NEW YORK BENEFITS AND BURDENS

Citizens for Tax Justice has analyzed both the benefit and burden of the Bush tax cuts. The New York data is statewide (although New York City is obviously a significant part of that data, both on the upper and lower ends of income).

Because the tax cut is entirely paid for by borrowing, the new debt burden becomes a significant problem - an average net burden of about $9,450 per person, or $37,826 for a family of four.

But it is the disproportion of the tax benefits in New York State that is most striking. New Yorkers in the top one percent of wealth (with an average income of more than $1.4 million) will get more than a third of the benefits this year, and more than half by 2007; they are promised an average tax savings of $81,308 this year. By contrast, the poorest 20 percent in the state will get less than one percent of the benefit; these poorest New Yorkers are promised an average tax savings of just $72 this year. The middle 20 percent (those with an average income of $35,000) are promised $793 this year.

While the wealthiest will get more and more, everybody else will get less and less. Citizens for Tax Justice points out that President Bush was misleading in saying of his 2003 round of tax cuts that it represented, "on average, a tax cut of $1,126" a year. Most New Yorkers will get far less:
· In 2003, 52 percent of New Yorkers will get less than $100.
· By 2006, 87 percent will get less than $100.

FEDERAL TAX CUTS OFFSET CITY AND STATE TAX INCREASES

Over the six-year period, there will nevertheless be an average of $13 billion of tax savings a year for New York State residents. Using New York State Department of Taxation and Finance datafor 1999 (latest available) we can make a rough estimate that some 40 percent of those savings will go to New York City residents.

(In 1999, nearly 40 percent of the total New York State adjusted gross income of $400 billion reported to the department was from New York City residents. And the 71,408 New York City taxpayers who reported income over $200,000 in 1999 represented 38 percent of all state taxpayers over that income level.)

One important result of these high-income federal tax savings is that they soften the impact of recent increases in city and state taxes, which are deductible on federal returns. In one example, in a July 2003 report(in pdf format), State Comptroller Alan Hevesi said the 2003 federal tax cuts alone would save city taxpayers approximately $3.2 billion. These savings would offset the impact of 2003 rate increases in state and city personal income taxes for married couples filing jointly with adjusted gross incomes over $200,000. Thus:

· Couples earning $200,000 had a net tax savings of $1,942.
· Couples earning $250,000 had a net tax savings of $3,152.
· Couples earning $600,000 had a net tax savings of $10,479.

FEDERAL DOMESTIC SPENDING STALLS

Bush tax cuts have not been offset by spending cuts. But the pressure on domestic spending is apparent in the current federal budget.

A new reportby the Center on Budget and Policy Priorities shows that over the past three years discretionary domestic spending, as well as defense, homeland security, and international spending have all increased - if at quite different rates. In fact, in the past year, domestic spending has stalled. Assuming that the Senate in January passes the omnibus spending bill passed by the House of Representatives in December:

· Defense, homeland security, and international affairs will show huge increases -- from $345 billion in 2001 to $534 billion in 2004.

· Domestic discretionary programs outside homeland security show small gains -- from $336 billion in 2001 to $389 billion.

However, domestic spending actually declined, according to the Center on Budget and Policy Priorities. When adjusted for inflation, the $389 billion planned for 2004 domestic spending is actually $7 billion less than in 2002, a decrease of two percent.

PUTTING EDUCATION, HOUSING, HEALTH, ETC. AT RISK

The Bush tax cuts, then, will transfer over $1 trillion over six years from the federal treasury to the nation's taxpayers, primarily to the wealthiest Americans. A substantial share of that transfer will go to wealthy New Yorkers and will offset to some degree recent state and city tax increases.

The huge tax revenue loss is compounded by the decision by the president and the Republican Congress to fund the tax cuts through borrowing. All this, plus a slumping economy and a huge increase in defense spending, adds up to nearly $4 trillion in federal budget deficits from 2002 to 2007.

Because of the Republican willingness to gamble on deficit spending to fund tax cuts and an expanding engagement in the Middle East, pressures to limit or cut domestic spending are likely to increase, an ominous prospect for a New York City whose economic recovery lags behind the nation's own slow recovery.

The real cut in federal domestic spending since 2002 is a disturbing sign that federal assistance for New York City in such areas as education, housing, transportation, the environment, health, and economic development is at risk because of the Bush tax cuts and other Republican priorities.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Artists' Fight To Sell On The Sidewalk


Ever since the founding of New Amsterdam, there have been battles over the right to control the public marketplace. The city's well-traveled sidewalks and parks offer enticing places to set up shop, whether you're selling books, art, knockoff purses, or hot dogs.

The most recent battle has been simmering since last March, when a 1991 New York State law that regulated vending expired. Since then, vendors have been proliferating in Times Square, Canal Street, Battery Park, and Fifth Avenue, with their numbers peaking during the holiday season. In October, the Times Square B.I.D. counted 208 vendors in the area, 66 more than in March. Mayor Bloomberg argues that the resulting sidewalk congestion creates a public safety issue, forcing pedestrians to spill out on to the street. This month, the State Assembly is likely to vote on legislation that would revise the old regulations and also place new restrictions on vending. Advocates for artist vendors say the proposed law infringes on their First Amendment rights and threatens their livelihood, and they have sworn to fight it.

Through odd legal quirks, the fate of artist vendors is tied to that of veterans. The old law limited the number of disabled veterans allowed to sell on city streets. Once it expired, veterans could sell anywhere and street artists could follow, thanks to a Department of Consumer Affairs policy that states once a disabled veteran sets up shop on an otherwise restricted street, artists can also set up there legally.

The legislation,which passed in the State Senate in June, would clarify regulations on veteran vendors, allow for fingerprinting of any vendor arrested for vending without a license, and prohibit vending altogether for several blocks around Ground Zero. The bill stalled when Democrats rejected the fingerprinting requirement, which they viewed as a threat to immigrant and minority rights (vendors would get permanent criminal records, even if their license had only recently expired). To its supporters, fingerprinting would be a security measure and a way to deter those without permits from selling. A related bill before the City Council proposes to create a permit system for vendors of written matter in all city parks, even though such a system was found to be unconstitutional in the past.before the City Council proposes to create a permit system for vendors of written matter in all city parks, even though such a system was found to be unconstitutional in the past.

Like immigrants, minorities, and disabled veterans, artist vendors tend to live near the poverty level and make their primary income on the street. While many hawk mass-produced prints of celebrities or landmarks, others sell original art that has not made it into museums or galleries. In the early 1990s, the city began requiring that artist vendors hold licenses, even though vendors of written matter did not need to do so. To protest this, a coalition of vendors formed A.R.T.I.S.T. (Artists' Response To Illegal State Tactics) and filed suit against the city. From 1996 to 2001, the group won a series of cases, including one that the city appealed all the way to the U.S. Supreme Court. The courts found that vendors of paintings, sculpture, prints, and photographs have the same First Amendment rights to free expression as those who sell written matter. A 1996 ruling by the U.S. Court of Appeals for the Second Circuit found that “visual artwork is as wide ranging in its depiction of ideas, concepts, and emotions as any book, treatise, pamphlet or other writing, and is similarly entitled to full First Amendment protection. . . . The sale of protected materials is also protected. . . . Furthermore, street marketing is in fact a part of the message of appellants’ art. Anyone, not just the wealthy, should be able to view it and to buy it.” The courts did not extend First Amendment protections to vendors of crafts, such as jewelry and pottery, though this exemption is now facing legal challenges.

Today, A.R.T.I.S.T. has 1,000 members. The group’s president, the painter Robert Lederman, says that the push to control vending is being led by Business Improvement Districts, which, he believes, want to protect established business interests and clear sidewalks for their own use. He claims that the B.I.D.s want to take out franchises on “street furniture,” such as planters and garbage cans, on which to sell advertising. “There’s been a history of conflict between business interests and vendors,” Lederman says. “In the early part of the 20th century, the Fifth Avenue Association tried to remove Jewish vendors in front of stores. And in the ‘40s Mayor LaGuardia tried to ban vending at a time when there were more vendors than stores, when almost anything could be bought on the streets.”

Some store owners have complained that vending takes business away from rent-paying stores. But there is also evidence that shoppers prefer areas where street life is bustling; one study found that businesses in the Caribbean neighborhood along Flatbush Avenue suffered after unlicensed street vending was shut down.

Lederman and other arts advocates argue that the city currently has enough tools to control vending, including regulations on how and where vendors can sell (20 feet from any storefront and 10 feet from a corner or subway entrance). In addition, the police can close any vending stand under “exigent circumstances,” including sidewalk congestion. According to a report by the Urban Justice Center, the Peddler Squad has become much more aggressive in giving out fines, closing down vendors, and confiscating goods for minor violations.

Jack Nesbitt, who has been selling his paintings on city sidewalks for seven years, was arrested twice last year. The second time, police brought him in for not having a permit (which he didn’t need), and then charged him with other violations, including being too close to a storefront. “They didn’t even pull out a tape measure when they arrested me. I had to take my own time to go to criminal court, where the sentences were dismissed,” Nesbitt says. “Free enterprise needs to start somewhere, and vendors are often the seeds.”

Martha Hostetter has written about the arts for the Village Voice, American Theater and Empire New York.

 

 

 

 

 

 

 

 

 

The City Modifies Its Budget and Searches for Cash


Every year around this time, the city charter requires the mayor to update the budget, called a budget modification. It was during last year’s modification that Mayor Michael Bloomberg unveiled an 18.5 percent increase in property taxes. This year, there is nothing so dramatic.

The good news is that the modification suggests at least a slight improvement in the city’s economy; it includes nearly $500 million more in projected non-property tax revenues. This news is supported by the City Comptroller’s December economic reportthat says, “The city is showing clear signs of economic recovery.” The city still lags behind the national recovery, and job losses continue, but the gross city product grew in the third quarter of calendar 2003 by 0.3 percent, after 10 quarters of decline.

The sobering news is that even after a $3.4 billion increase in tax revenues this year, revenues will be nearly $1.9 billion short as early as next year, and there is a projected budget deficit for 2007 of nearly $3.9 billion.

And so, there is a new search for new revenue once again.

THE 2004 MODIFICATION

This year’s budget, only five months old, jumps to $45 billion, some $1.3 billion more than projected in late June. In addition to the $500 million increase in non-property tax revenue projections, the modification recognizes federal and state categorical grants of another $600 million. Since they are given for specific purposes, these grants generally do not help in reducing budget deficits.

The city will use most of its new revenues in two ways: The budget stabilization account – a reserve fund where the city can park dollars – gets over $400 million (which at least in the current long-term plan will be used to reduce the budget deficits in the next two years). This is in addition to $300 million already in the general reserve fund, for a projected year-end surplus of over $700 million. Another $200 million will be used this year as pay-as-you-go capital expenditures. This has the advantage of reducing capital borrowing and thus reducing interest payments. The mayor plans to repeat this annual expenditure in the three subsequent years.

Total salary, wage, pension, and fringe-benefit costs of the city workforce are up a little over $200 million, to $24 billion, while other-than-personal service projected costs (including Medicaid, public assistance, and contractual human services) are up about $500 million since June, to nearly $19 billion. These modest changes seem again, at least in broad terms, to support the mayor’s claim that he has been able to keep services stable.

BEYOND THE 2004 BUDGET

The mayor and the City Council created a good part of future budget shortfalls by making this year’s increases in personal income and sales tax only temporary.

The mayor’s tax revenue strategy last year was bold but sudden, effective but undemocratic. Both the property tax increase in November 2002 and the personal income and sales tax increases in June 2003 were last-minute proposals that made public (and city council) engagement impossible. Thus it is no surprise that this November modification contains no information about future strategies.

Tolls On Bridges

The mayor’s first ambitious revenue idea – the introduction of tolls on the city’s bridges – was floated in the early months of his administration. Strong opposition to that idea and his current reluctance to follow-up perhaps help explain the secret revenue planning since. But the Independent Budget Office’s October 2003 report, “Bridge Tolls: Who Would Pay? And How Much?” is a good reminder of how important those revenues could be to attaining structural balance in the city’s long-term financial plan. The IBO estimates that the city could raise nearly $700 million a year by tolling the East River and Harlem River bridges.

One big objection to tolling bridges, of course, is that a majority of the drivers (55 percent) are New York City residents. The report speaks to that worry by noting (in an admittedly rough estimate, based on a household survey), “Exempting city residents from tolls would reduce the annual revenues to a combined $308 million.”

In terms of numbers of users, the report shows that fewer than 300,000 New Yorkers (out of 8 million) drive across these bridges, about 3.7 trips per 100 residents. In terms of income, about 42 percent of all users of the bridges are either low to moderate-income city residents (under $50,000 household) or middle-income city residents ($50,000 to $100,000). The report points out that although the number of New Yorkers affected would be few (and some would take alternative mass transit), the impact would be much more concentrated than in the case of personal income and sales taxes.

Stock Transfer Tax

Another IBO study, “Reviving the New York Stock Transfer Tax: Revenues and Risks,” speaks to another big revenue option that has been proposed by some advocacy organizations, including the Working Families Party and the Fiscal Policy Institute. The city first imposed a stock transfer tax in 1966. It was phased out by 1981. If still in place, it would have produced $9.3 billion in 2003 for the city. The study traces the impact of reviving the tax, at half its 1970s’ rate. That would produce nearly $5 billion, if there were no “adverse reactions.”

In a best-case scenario, the study finds that the new tax would increase transaction costs by 23 percent, reducing trading volume on the New York and American stock exchanges by 18 percent. That would eliminate nearly 60,000 private-sector jobs. Since the increased revenue would fund almost 38,000 public-sector jobs, the net job loss would be 22,000. That translates into a net revenue gain of $2.9 billion for the city. The study concludes with another scenario with “significant downside risks” – where one-third of trading activity moves out of the city – and job losses in the city “could climb to 150,000 and net city revenue gains would fall to zero.”

One-Shot Deals – 1. Airport Lease Agreement

Given the imminent reduction in basic tax rates and a reluctance to tackle controversial revenue sources like the city bridges and Wall Street, the mayor has become more dependent on one-shot deal-making. The apparent long-delayed agreement on a new airport lease agreement between the Port Authority -- announced by Governor Pataki and Mayor Bloomberg in October -- is the prime example. It is worth $700 million in up-front money over the next two years, and nearly $100 million a year thereafter.

While there seems to be general acceptance among fiscal monitors of this deal (former Mayor Rudy Giuliani failed during his two terms to settle disagreement over Port Authority payments to the city under the old agreement), a deal that ties the city until 2050 has received surprisingly little public attention or review. The deal is nevertheless a key to the current four-year financial plan.

One-Shot Deals – 2. Borrowing-for-Cash With Battery Park City Authority

Another quiet deal built into the current fiscal year budget is the city’s agreement with the Battery Park City Authority, controlled by the governor, to borrow $150 million through the authority, primarily to provide cash to the city. This requires state legislative approval and mimics a similar borrowing-for-cash that former Mayor David Dinkins employed through the authority in the early 1990s when in a fiscal bind. In both cases, the city in effect pays the debt service, through reductions in excess Battery Park City revenues that would otherwise come to the city. (A related if forgotten story is that excess authority revenues were supposed to be used for affordable housing.)

One-Shot Deals – 3. Snapple

The mayor has now moved from behind-the-scenes, public-authority deal-making for cash to corporate/city deals. The mayor’s agreement with Snapple to provide certain beverages to the public schools and other city facilities has roused the opposition of both the City Comptrollerand the City Council, which held a long hearing on the deal on December 4. The Comptroller, who testified at the hearing, objects to the process, and several Council members objected both to the process and the substance of the Snapple agreements described by Deputy Mayor Dan Doctoroff.

The Comptroller, in his remarks, said that the city “can’t cut corners” and “must be above reproach” in the procurement process. Doctoroff later contended that the deal was not subject to city procurement rules, that it was a unique opportunity for the city to develop a profitable relationship with a brand-friendly company. Several representatives from other beverage companies charged that the competitive process was flawed and at least two said had they known the full potential of the deal, they would have bid more than Snapple.

The $166 million in anticipated revenues over five years is not insignificant, but as council member Bill Perkins pointed out, there are potential problems with “monopolistic opportunities” and using “kids as captives.” No one at the hearing asked how many water fountains there are in schools. After all, the deal, among other products, promotes bottled water for the students; thirty percent of the student cost for each bottle goes to the city. (Well, not quite. Actually, fifteen percent of the city’s share of that payment goes to Octagon, the private marketing firm that negotiated the Snapple deal for the city.)

It’s good to know that our children will be making their contribution to the city’s balanced budget.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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