Some members of New York’s congressional delegation seem obsessed with worry that President Bush won’t deliver every penny of the $20 billion in disaster relief he promised to the city in the wake of Sept. 11. But in trying to nail down more federal dollars for rebuilding expenses that haven’t even been fully tallied yet, they are virtually ignoring Bush’s offer of broad-based tax relief that would give a significant boost to the Big Apple’s battered economy.
Six months and a seeming eternity ago, Congress approved the president’s sweeping income-tax cut, which will save New Yorkers $89 billion over the next 10 years. Now the White House is strongly supporting a Senate Republican economic-stimulus bill that would accelerate into next year all of the income-tax-rate cuts now scheduled to take place in 2004 and 2006.
Taxpayers in all but the lowest income bracket (which was already cut this year) would save 8 to 12 percent on their income taxes.
Speeding up the tax cut in this manner would pump at least $10 billion into New York state’s economy over the next four years. More than three-quarters of that savings would flow to taxpayers in the metropolitan area–including nearly $4 billion to the city alone.
Indeed, New York City’s direct benefits from Bush’s plan (which also includes sizeable business tax cuts) is nearly equal to the targeted tax incentives included in a Senate Democrat stimulus proposal backed by Sens. Charles Schumer and Hilary Clinton.
The Schumer-Clinton plan consists of expanded tax-exempt financing for lower Manhattan reconstruction, a provision encouraging dislocated firms to reinvest insurance proceeds in Manhattan and a special tax credit for firms that retain or add to employment in the area most affected by the 9/11 attack.
That package is designed to help city officials jump-start the rebuilding effort and dissuade some firms from fleeing Manhattan, at least for time. But New York’s economy also desperately needs the kind of strong, fundamental boost that would result from permanent, broad-based cuts in marginal income tax rates.
Because of their high living costs and above-average household incomes, New Yorkers pay a disproportionately heavy share of the federal tax burden–a major reason why the Empire State sends at least $16 billion a year more to Washington than it gets back every year.
Anything less than an across-the-board tax cut (for example, refunds for people who don’t pay income taxes to begin with) will inevitably shift an even larger share of the tax burden to New York and a few other high-income states, including Connecticut and New Jersey.
Of course, the benefits of an accelerated income tax cut wouldn’t be limited to New York. Nationwide, the Bush/Senate GOP stimulus plan would generate 10 times as many new jobs and 10 times as much added investment over the next four years as the much smaller Senate Democrat stimulus plan, a Heritage Foundation analysis found.
Unfortunately, the importance to New York of broad-based federal tax relief has yet to be grasped by most of the New York political establishment Democrats or Republicans–with the conspicuous exception of Mayor Rudolph Giuliani.
At a special city budget briefing last month, Giuliani explained why an accelerated federal income tax cut would “dramatically” help the city:
“Reduce taxes and you leave money in our local economy,” Giuliani said. “Reduce taxes and you give people the opportunity to spend in New York, to invest in New York, do the things they’ll make the choice of doing in a free economy in New York. This is how we should think of our recovery, not [as] some kind of master plan that used to not work in Eastern European countries.”
The Bush bill is by no means the final word on what New York really needs in terms of federal tax policy changes. Two priorities really stand out:
First, cut the capital-gains tax. This is enormously important to a New York economy that remains heavily reliant on a vibrant stock market.
Second, repeal the individual Alternative Minimum Tax (AMT). The AMT was designed 30 years ago to hit only the rich–but now it affects growing numbers of typical middle-class families in New York. If it stays in existence, it will steadily undermine the value of Bush’s tax cuts and make tax filing even more complex for hundreds of thousands of New York taxpayers over the next few years.
Understanding and embracing broad-based federal tax cuts will require a change in the mindset of many New York politicians. In Giuliani’s words, it requires them to “think like capitalists” rather than central planners.
Bush has told Congress to send a stimulus bill to his desk by the end of the month, and accelerated income tax cuts are reportedly in the center of the negotiating mix. That means there’s still time for New York’s representatives to get their act together behind a plan that will actually do the most for the city, state and national economies.