Let us now praise New York Mayor Michael Bloomberg, who has learned a few things about tax rates and incentives.
New York state and city revenues are falling amid the collapse of Wall Street, and state lawmakers in Albany are considering income tax hikes for households earning between $250,000 and $1 million, who already pay 6.85% to the state. Meanwhile, the New York Post reports that City Council Speaker Christine Quinn wants to increase the city's top tax rate of 3.68% for households earning as little as $297,000 (to 4.25%); those earning $532,000 to $1.2 million would pay 4.45%; and above that 4.65%.
But late last week Mayor Bloomberg was channelling these columns when he said that raising taxes on high earners could drive them from the city. "One percent of the households that file in this city pay something like 50% of the taxes," explained the Mayor. "In the city, that's something like 40,000 people. If a handful left, any raise would make it revenue neutral. The question is what's fair. If 1% are paying 50% of the taxes, you want to make it even more?"
This is a different argument than Hizzoner made in 2003, when he called New York City a "luxury product" and said people would gladly pay more to live there. But that was when the federal government was cutting tax rates, and Wall Street was set to boom. Now the financial industry -- which has provided about 20% of city and state revenues -- will emerge from recession smaller than before, and grand bonuses may not return for years.
New York's combined state-local tax rate of 10.5% is already well above New Jersey (8.97%), Pennsylvania (6.98%), Connecticut (5%), or Florida (0%). Which is to say that Mr. Bloomberg is right that New York's upper middle class has plenty of options if the politicians give them another reason to move.