Facing an uphill battle in Albany to win renewal of New York City’s former commuter tax, the Bloomberg administration is floating a new “tax reform” idea that can only be described as breathtakingly wrongheaded.

It goes like this: The income tax on city residents will effectively be cut 26 percent, lowering the top rate to 2.7 percent from the current 3.65 percent. And over the next four years, the tax will be further reduced until the top rate hits 2.25 percent.

So far, so good. The city economy certainly could use a tax cut right around now, and this one would amount to a substantial $1.3 billion. But the city is at the bottom of a $6 billion budget hole, and Bloomberg has already leaked plans to raise property taxes by $2 billion or more.

This is where the breathtaking part comes in: To finance the proposed income-tax cut for city residents, and raise a net $1 billion in new revenue to boot, Bloomberg and the City Council would ask the state Legislature to extend the tax to everyone working in New York.

This would effectively amount to a $2.3 billion tax hike on commuters, including those who travel to their jobs from neighboring New York counties or from New Jersey, Connecticut and Pennsylvania. In short, non-residents would be asked to subsidize a massive income-tax cut for city residents.

City Hall is spinning this as a way to “mitigate” the effects of a likely property-tax hike – but for most city residents, it would do far more than that. After all, the city’s property tax hike falls most heavily on commercial properties, which foot 44 percent of the bill, and least heavily on single-family homes, co-op apartments and condominiums, which pay just 14 percent.

Thus businesses ultimately will end up paying for nearly half of any property-tax hike, once it is passed along by landlords. Under the proposed new income tax on commuters, firms also will feel pressured to raise salaries for workers who live outside the city.

Such a double-whammy would send a strong signal to many employers that it’s time to rethink their futures in New York

On an individual level, the proposal takes the traditional commuter tax – a classic form of taxation without representation – to new extremes of inequity.

Consider two hypothetical couples with taxable incomes of $100,000 a year, all earned in New York City. One couple lives in Queens and owns a single-family home with an average residential assessment. The other couple commutes into work from Rockland County.

* For the Queens family, Bloomberg’s proposal represents an income-tax cut of about $1,000, while the rumored property-tax hike would mean an increase of about $500, yielding a net savings of $500.

* For the Rockland County commuting couple, the plan works out to a whopping tax hike of $2,483 (compared to $450 if the old commuter tax were restored). At higher income levels, the disparity is even greater.

Perhaps this plan is just a ploy by the mayor to make the old, smaller commuter tax more palatable. If so, it risks being too clever by half, calling to mind Gov. Pataki’s post-9/11 federal aid request, with its famously incongruous bid for funding of a high-speed rail line to New York from Schenectady.

That shoot-the-moon approach blew up in the governor’s face, undermining his own and the state’s credibility with Congress at a crucial juncture. Bloomberg’s tax gambit could produce a similar effect in the state Capitol.

To suburban lawmakers – not to mention their constituents – it goes beyond off-putting. It’s downright antagonistic. The mayor now runs the risk that the answer from Albany won’t just be a plaintive “let’s negotiate.” It’ll be a definitive “get lost!”

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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