It’s no secret that Republicans will be venturing into enemy territory next week when they gather in the heart of the Big Apple to renominate President Bush. Yet residents of New York — state and city — have been huge winners under the Republican president’s economic policies. By the same token, New Yorkers would be big losers under the tax proposals of the Democratic candidate, Sen. John Kerry.
You’ll seldom hear a hint of any of this from New York politicians — in either party. Public-sector economic forecasters rarely touch on the New York-centric effects of the 2001 and 2003 federal tax cuts, much less the steep economic downside posed by Kerry’s proposal.
As estimated by a Manhattan Institute analysis of federal tax data, the numbers speak volumes:
Bush’s individual-income-tax cuts over the past four years have generated a cumulative total of $36 billion in savings for residents of New York state, including $15 billion for taxpayers in New York City.
In 2004 alone, New York state taxpayers will save nearly $14 billion — an amount equal to more than half the state’s own income tax collections. This year’s income tax savings for New York City residents will approach $6 billion — exceeding the total raised by the city’s own income tax.
Assuming all current tax cut provisions remain in effect, state taxpayers stand to gain $108 billion by 2010. Some $46 billion would flow to residents of the city.
If the impact of the 2001 and 2003 tax cuts had been limited to these direct individual savings, it would have provided a solid boost for New York’s economy and for the nation as a whole. But the cuts also produced broad, indirect effects that were especially beneficial to the Empire State’s economy — and, by extension, to the finances of state and city government as well.
Bush’s tax policies couldn’t have been better tailored to meet needs of New York City, in particular, under the conditions that prevailed here after the stock market crash, recession and World Trade Center attack. Last year’s reduction in taxes on dividends and capital gains provided a real shot in the arm to stock prices — boosting, in turn, the profits of the securities industry, which accounts for an estimated one-quarter of the city’s economic activity and nearly a fifth of its wage income.
The timing of Bush’s tax cuts was also fortuitous for New York. The latest round of federal rate reductions hit the withholding taxes in mid-2003 — at precisely the same moment as a 16 percent temporary increase in the combined New York state and city income-tax rates on filers earning as little as $100,000. The federal savings was at least two or three times the amount of the state and city increase; otherwise, the tax hikes enacted by the state Legislature and Mayor Bloomberg (over Gov. Pataki’s vetoes) would have had far more negative economic consequences.
But federal tax policy is very much in flux. Several key provisions of the current law are due to begin expiring at the end of this year, with taxes on investment income due to revert back to prior levels by 2009. Without further changes, the Alternative Minimum Tax (AMT) alone will increasingly consume the Bush tax cut savings for middle-class homeowners in New York and the other high-income, high-tax states of the northeast.
The Bush administration is reportedly weighing options for further shift toward a consumption-based income tax. The goal would be to create more incentives for savings and investment — which inevitably would translate into an added boost for New York’s financial community.
Kerry, however, has pledged to seek a rollback of all the Bush tax cuts for taxpayers earning more than $200,000. Compared to a continuation of current tax provisions, the net effect of Kerry’s proposals (including some new tax credits) would be to hike taxes on New York state residents by nearly $4 billion in 2005, including $2.2 billion in the city. With just 6.6 percent of the nation’s tax filers, the state would account for 11 percent of the total Kerry tax increase.
To say the least, New York has a huge stake in the outcome of the election and of coming congressional battles over the future of the federal tax code. Buoyed by the financial sector and by Bush’s tax cuts, the city’s economy recently has begun to grow again. Real-estate values are still soaring. Tourism and hotel bookings have been strong.
The Republican president clearly deserves a hefty share of the credit for this turnaround. But outside Madison Square Garden, he won’t get it.