New York City’s struggling economy will lose another 62,000 private sector jobs as a result of the 18 percent property tax hike agreed to by Mayor Bloomberg and the City Council, according to an estimate based on the Manhattan Institute’s NYC-STAMP econometric model.
A job loss on that scale would be more than enough to offset the modest employment gains that have been projected for the city in 2003 by most economic forecasters. It would also continue a downward trend dating back to the end of 2000, during which the city already has lost 150,000 jobs.
The NYC-STAMP model uses standard statistical methods to estimate the significance of relationships between economic variables, such as private sector employment, and changes in the city’s income tax, sales, property tax and general corporation tax rates. The model’s findings stem from correlations based on a quarter-century’s worth of tax and economic data.
The STAMP model also is designed to generate “dynamic” estimates of revenue changes associated with tax cuts and tax increases—taking into account other economic consequences that such changes are likely to have. In the case of the property tax increase, the model estimates the net annual revenue gain ultimately will be $300 million lower than the $1.68 billion projected in the city’s modified financial plan.
Mayor Bloomberg originally asked the Council to approve a 25 percent property tax increase, which would have resulted in the loss of roughly 85,000 jobs, according to NYC-STAMP’s calculations. However, while the job loss under the agreed-upon 18 percent tax hike will be smaller, there may be even worse news ahead for the city’s battered economy.
With Council support, the mayor also plans to seek state legislative approval to expand the city’s existing resident income tax to all wages earned by the 800,000 to 1 million daily commuters to the city. At the same time, tax rates would be immediately cut by 26 percent across the board. In effect, this would mean a $1.3 billion tax cut for city residents, offset by $2.3 billion tax increase for commuters, yielding a net $1 billion in new revenue.
The impact of Bloomberg’s income tax proposal, which he has termed a “tax reform,” cannot be measured by NYC-STAMP based on the city’s existing tax structure. However, the new commuter tax appears highly unlikely to gain approval from the state Legislature and Governor Pataki. If the Mayor and the City Council respond by seeking to raise an additional $1 billion through a surcharge on the existing resident income tax, NYC-STAMP estimates the city will lose another 37,000 jobs—bringing the total tax-related employment loss to roughly 100,000 jobs.
Originally Published: FISCALWATCH MEMO
- NYC-STAMP is a variant of the State Tax Analysis Modeling Program created by the Beacon Hill Institute at Suffolk University in Boston, Mass. STAMP is designed to identify the effects of tax policy changes by using standard, widely accepted statistical techniques and by creating a “model” of interactions between economic and tax variables, based on data gathered over a long period of time. For more on the model and its previous findings, see “What New York Has Gained from Tax Cuts,” Manhattan Institute Civic report #20, at http://www.manhattan-institute.org/html/cr_20.htm#06.
- If the city’s resident income tax rates were reduced as Bloomberg proposes withoutexpanding the base to commuters, the NYC-STAMP model calculates the combined effect of this change and the property tax hike would be a net loss of 12,000 private sector jobs in the first year of the change. If the income tax rate was reduced to 2.2 percent—again,without expanding the base to include commuters— the resulting employment gains would completely offset the loss caused by the property tax hike. Bloomberg’s proposal to combine such tax cuts with what amounts to a massive new wage tax on commuters would have other negative economic consequences, for both the city and the surrounding region, which the STAMP model cannot currently estimate.
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