When Mayor Giuliani formally unveils his eighth and final city budget today, advocates of more expansive city spending are sure to attack his proposed tax cuts. Ironically, Giuliani will be accused of cutting taxes too much – when, if anything, he hasn’t cut them nearly enough.

On the surface, the city’s recent tax-reduction record looks impressive. New York residents and businesses have saved $2 billion from city tax cuts over the past five years. But those numbers need to be kept in context: After all, just a few years before the tax-cutting started, Mayor David Dinkins had raised taxes by $1.8 billion, in current terms.

The net change in city taxes since 1990 has been a decidedly more modest cut of $200 million ($700 million, if you include the commuter-tax repeal, which mainly helped suburbanites).

Yet the facts support Giuliani’s assertion that tax reductions played an important role in the city’s economic resurgence – especially if state as well as local taxes are considered part the mix.

Thanks largely to policies initiated by Gov. Pataki, who took office a year after Giuliani, combined state and city marginal rates on personal- and corporate-income taxes have dropped every year since 1995. The state has also killed several taxes that fell especially hard on New York City, including the “Cuomo tax” on large real-estate transactions, the state hotel-room tax and the estate and gift tax.

In the past five years, New York has experienced the deepest and broadest combination of state and local tax cuts in its history. Small wonder the city’s economy turned in its strongest performance in decades.

In the near future, there will be less tax-cutting help coming from Albany, where Pataki and the Legislature are focused mainly on tax packages tailored to help upstate. That makes it all the more important for the city to adopt – and stick to – a more ambitious tax-cutting strategy of its own.

The mayor announced in January that his next budget would propose $1.2 billion in tax cuts, including the complete elimination of sales tax on clothing; an extended property-tax abatement for co-ops and condominiums; a 10 percent across-the-board cut in business-income taxes; and repeal of the remaining commercial-rent tax. This past weekend, Giuliani disclosed that his revised budget would also cut a small portion of the remaining Dinkins income-tax surcharge, worth another $180 million to taxpayers next year.

Giuliani’s updated tax-cut package moves in the right direction, but doesn’t go fast enough or far enough. For example, the commercial-rent-tax repeal and the business-tax cut wouldn’t be fully phased in until 2005. And even if his personal-income-tax cut is adopted, the top rate will still be higher than it was before Dinkins took office in 1990.

Far from being “excessive,” as Giuliani’s critics are likely to claim, the mayor’s proposed cuts would only partly offset what is projected to be the steepest jump in real-estate-tax collections in a decade. Under Giuliani’s preliminary fiscal plan, the city plans to squeeze property owners for another $1.8 billion over the next four years – a 22 percent increase.

That surge reflects the phase-in of higher assessment driven by the rising market of the late 1990s, rather than any deliberate action to raise rates. But property taxes on the city’s commercial and apartment buildings were high even before the Dinkins rate hikes – which have never been rolled back.

Instead of allowing real estate taxes to rise automatically, more should be done more to lift the dead hand of the Dinkins administration from the city’s economy, once and for all.

New York City enjoyed continuing job growth and a decline in unemployment as of March. But given the extraordinarily high cost of living and doing business here, it would be foolhardy to assume that the city can maintain that kind of economic growth without making any further effort to reduce its tax burden, which remains by far the heaviest imposed by any big city.

Giuliani has framed the risk well: “If you don’t cut taxes, you will go back to where you were in the late ’80s and early ’90s, with 320,000 jobs gone and unemployment going higher, and that’s really the challenge for the City Council.”

But is anybody listening?

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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