So it’s unanimous: All five of the leading prospective Democratic candidates for mayor are now on record in support of raising New York City’s top income tax rate.

Former Comptroller Bill Thompson and City Council Speaker Chris Quinn both endorsed income-tax hikes for high-income earners in 2009, and have given no sign of changing their positions since then.

Manhattan Borough President Scott Stringer has a revenue-neutral plan that combines middle-class tax cuts with higher taxes on incomes above $300,000, and Comptroller John Liu has proposed a net tax hike of up to $1 billion that would hit married filers earning more than $500,000.

The latest to join the parade is Public Advocate Bill de Blasio, who last week called for financing a half-billion dollars of “investment” in education programs by raising the city resident tax rate to 4.3 percent from the current 3.9 percent on incomes above $500,000.

De Blasio noted the city’s income-tax rate was raised to nearly 4.5 percent between 2003 and 2005, when the state also temporarily raised taxes. But he didn’t point out that the 2003 tax hike took effect at the same time as a much larger federal tax cut, spearheaded by President George W. Bush.

It’s a lot different now.

The approaching national election inevitably will lead to big changes in federal tax policy — changes that are likely to make it harder for New York to get away with maintaining its high taxes, much less raising them.

President Obama wants to roll back the Bush tax cuts for incomes as low as $200,000. His budgets also would cap the value of tax deductions — including the deduction for state and local taxes — for high-income households.

Mitt Romney wants to lower rates, not raise them. But to make that work, he’ll need to reduce or eliminate a broad array of tax breaks. So he, too, is likely to target the state and local tax deduction, which effectively subsidizes high-tax states and cities like New York.

So this is an exceptionally risky time to even think about raising New York’s rates even higher.

Any change in city income taxes requires state OK, but that shouldn’t be too tall an order. Just last December, Gov. Cuomo went back on his no-tax-hike promise to extend a temporary “millionaire tax” increase through 2014. He justified the turnaround on fairness grounds — implying (wrongly) that the state had been treating a $20,000 income the same as $20 million.

Stringer, Liu and Quinn have made similar claims about the city tax code. As Stringer put it: “We have a teacher who makes $50,000 paying the exact same tax rate as a CEO making $500,000. That’s just not right.”

It’s also just not accurate.

Like most other New York pols, Stringer confuses marginal rates with effective rates, and taxable income with gross income.

In fact, a single city resident who earns $50,000 a year pays 2.9 percent of that amount in city income taxes. A single person with $500,000 of gross income typically pays just over 3.4 percent.

The city’s tax structure is flatter than the state or federal ones — if only because previous generations of Gotham officials, going back to the Lindsay era, realized they couldn’t get away with sticking wealthy households with even more of the bill for city government.

As things now stand, over 71 percent of the city’s income tax is paid by the highest-earning 10 percent of filers, including 43 percent paid by the highest-earning 1 percent. New Yorkers with incomes below $49,500 — the bottom 70 percent — accounted for just 8 percent of the tax liability.

The mayoral candidates no doubt will continue denying that a soak-the-rich tax policy will induce any flight of high-income households from New York to lower-taxed jurisdictions.

But here’s a couple of things they can’t deny:

The incomes of the wealthiest New Yorkers are exceptionally volatile, so raising their taxes will make the city’s fiscal foundations shakier.

And when you depend even more on a relative handful of high-income folks, its even riskier to give them new reason to spend, invest or earn less income in New York.

Populist pandering on city tax policy may be a winning political approach in the short term. But all New Yorkers will lose in the long run.

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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