Thousands of union members will gather in Albany today to demonstrate against Governor Paterson’s proposed state budget cuts, and most of them will no doubt be pushing organized labor’s soak-the-rich income tax hike as an alternative.  But Steve Kagann, New York State’s chief economist under former Governor Pataki, has a timely piece in today’s Post warning about the economic consequences of raising income taxes, especially in the current economic environment.

Kagann recalls a series of destructive tax-and-spend cycles in New York dating back to late 1960s.   When the stock market and economy slumped in 1969, the response on both the state and city level was a series of massive tax hikes.  Between 1969 and 1976, Kagann notes, the city lost 1 million residents and nearly 18 percent of its private-sector jobs.

When the Wall Street and real estate bubbles popped in the late 1980s, leading to severe budget shortfalls, the response of city and state officials was familiar: denial at first, followed by a new round of tax increases.   Picking up from Kagann:

In other words, as that [early ’90s] recession progressed, the state and city reopened the 1970s playbook: Raise taxes and our problems will disappear!

It didn’t work: Despite tax hikes in 1990, 1991, 1992 and 1993, revenues spiraled downward, jobs vanished and the people suffered. The old playbook brought the same old, bad results.

Academic research is clear: Raising state and local taxes chokes off jobs. My own research, focused on New York state and city, has shown that raising taxes during a recession greatly magnifies job losses – and raising the income tax is the sure road to job destruction.

Why? In general, hiking taxes raises the cost of living and doing business in New York, leaving us at a competitive disadvantage to other locales. In particular, raising income taxes leaves less cash for investment in business – pushing jobs and people to move to lower-cost states at an even faster pace.

Kagann knows what he’s talking about.  During an earlier stint as then-Comptroller Liz Holtzman’s chief economist in the early 1990s, he correctly predicted that the city’s income tax hikes under then-Mayor Dinkins would lead to a further loss of 100,000 jobs.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

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