Get a Handle on the City’s Tax Policies

By a variety of measures, New York is easily the nation’s most heavily taxed big city. In devising a strategy for competing economically on both a global and regional basis, New York’s next mayor needs to recognize that the city can’t tax with impunity.

The city’s high taxes have a pervasive economic impact — directly and indirectly driving up rents, electricity rates, wages and other factors contributing to the high overall cost of living in New York. Small wonder, then, that New York is also the most expensive place in the country in which to build a new business, according to a recent study by the Partnership for New York City.

Recent tax hikes in Washington and Albany haven’t helped. For the first time in nearly 20 years, the combined federal, state and local income tax rate has risen above 50 percent. It effectively hits 54 percent for New Yorkers with income from business partnerships — including many whose hiring and investments provide much-needed grease for the wheels of the city’s economy.

That tax bite could easily get bigger still, since a cap on state and local tax deductions for high-income taxpayers is one of the few tax reform objectives that President Obama and Congressional Republicans actually agree on. That makes this the worst possible time to push the city income tax even higher, as both Bill de Blasio and John Liu are advocating as part of their mayoral platforms. A higher income tax would create an even larger deterrent to job creation and investment in New York for those businesses that find it increasingly easy to be located anywhere.

The next mayor should revive the approach of Mayor Rudolph Giuliani, who made city tax reduction a perennial budget priority. By the time Giuliani left office in 2001 local taxes as a share of gross city taxes had dropped to the lowest level in decades — and state tax cuts had furthered boosted New York’s competitiveness.

Unfortunately, much of that progress has been reversed over the past dozen years — and so the next mayor needs to start all over again. His or her economic priorities must include a repeal of the city’s remaining 1990 income tax surcharge, an overhaul of the city’s inequitable property tax, and the reduction and elimination of business taxes unique to New York.