New York Tops 8 Big Cities in Taxes, Study Shows

February 21, 2007

The city’s Independent Budget Office, which prepared the report, is widely seen as the authoritative source of nonpartisan fiscal and economic analysis for New York. The office had tackled the same issue in a 2000 report, with similar findings, but this time it factored in state tax burdens in comparing the nation’s largest cities.

The new analysis attributed much of the disparity between New York and the other cities to the exceptionally high costs New Yorkers bear paying for Medicaid, the health insurance program for the poor that is run by the federal and state governments but partly financed by the city.

The average state and local tax burden for the nine cities in the analysis was $6.16 of every $100 in gross taxable resources. Philadelphia ($7.16) came in a distant second to New York, and Los Angeles ($6.88) came in third, according to the analysis.

The analysis considered aggregate tax burdens — not how those burdens are distributed — so it cannot be used to calculate whether a given family would pay less in taxes if they moved out of the city. Nonetheless, the findings were seized on by politicians and others who have raised alarms about the tax burdens New Yorkers face, be it through the city income tax that tops out at 3.65 percent, a state income tax rate that hits a ceiling of 6.95 percent, along with property and sales taxes.

Representative Anthony D. Weiner, a Democrat who represents parts of Queens and Brooklyn and ran for mayor in 2005, called the report “a surprise to no one.” He called for imposing hefty surcharges on incomes over $1 million to lessen the tax burden on the poor and middle class.

Kathryn S. Wylde, president of the Partnership for New York City, the city’s leading business group, warned that the report signaled that the city was overly reliant on high taxes to finance its expansive government, and that a cooling real estate market could magnify that problem.

“As the economy flattens out or stabilizes, there is no way to sustain the current tax rates and still meet the expenses we’ve established,” she said. “This is a long-term problem, and any business looking down the pike sees that New York is in a position where it will have to raise taxes on businesses or high-income individuals.”

David R. Belkin, a senior economist at the Independent Budget Office and the lead author of the report, cautioned that taxes are only one factor in the decision of where to live, work and invest.

“This report compares how much state and local governments are taxing in the largest U.S. cities — not what services these governments are providing their taxpayers,” he said. “Households and businesses look at both sides of the ledger in deciding whether a given tax level is too much.”

On the expense side of the ledger, according to analysis, New York is exceptional because the city’s share of costs associated with Medicaid and, to a lesser extent, Temporary Assistance to Needy Families and other welfare programs. “In no other big city did the municipal or county government face a remotely comparable mandate to fund transfer programs,” the report found.

Without the cost of those two programs, the report said, the city’s tax burden would be much closer to the average of the largest cities.

Although property taxes often dominate the local political discussion, the report found that property, sales and utility taxes in New York City are not especially high relative to the other eight cities: “It is in the area of income taxation — personal and business — that New York City really stands out.”

But Rae Rosen, a senior economist and assistant vice president at the Federal Reserve Bank of New York, warned that it was simplistic to compare New York with other large American cities. Unlike the largest cities in California and Texas, New York City is the pre-eminent economic engine of the state, she said, so it will inevitably bear a large proportion of the state’s tax burden.

She also noted that businesses already stay in New York even though labor and rent remain their biggest expenses — not taxes. “If businesses are willing to locate here and pay some of the highest wages and rents in the nation, that’s by choice,” she said.

The earlier report by the office, in February 2000, found that local government taxes absorbed $7.99 of every $100 in taxable resources in 1997, 79 percent more than the average of $4.47 in the next nine largest cities.

But the office said those figures could not be directly compared to the figures in the new report, because of several adjustments in methodology, including the addition of state tax burdens to the new report. The new analysis is based on data for 2003-2004 from the Census Bureau and the Bureau of Economic Analysis, both parts of the United States Department of Commerce.

New York, despite its high concentrations of wealth, is far from being the richest big city per capita, the report found. New York’s gross taxable resources — the personal incomes of residents and the gross operating surpluses (income less employee compensation) of businesses — averaged $61,622 per resident, trailing Dallas ($74,383), Houston ($72,835) and San Diego ($63,814).

The analysis then calculated each city’s tax burden — tax collections (not counting taxes on hotel occupancy and nonresident personal incomes) per $100 of gross taxable resources.

In general, the cities with weaker tax bases — San Antonio, Philadelphia, Phoenix and Los Angeles — tended to have higher individual tax burdens than the wealthier cities of Dallas, Houston and San Diego. (Of the nine cities, Chicago was slightly below average in both per capita taxable resources and tax burden.) “New York City sits far outside the trend line,” the analysis found.

New York also led the nine cities in the ratio between local and state taxes. Of the total state and local tax burden in New York, 62.3 percent went to the city or the Metropolitan Transportation Authority and only 37.7 percent went to the state. In San Diego, Los Angeles, Houston, Phoenix and Dallas, the state’s share of the tax burden was more than half.

“The supposition that high New York City municipal taxes are offset by relatively low state taxes is not sustained,” the report found.

Article at: nytimes.com