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A Fair Urban Tax Code?

Urban Nation | Ben Adler | May 18th, 2009 | Topics: Urban Nation | Region: Urban Nation | Cities: New Orleans, Urban Nation | 2

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Facing a budget deficit, New York City Mayor Mike Bloomberg has sensibly proposed to raise taxes. Unfortunately, the taxes he wants to raise are the worst possible kind. Bloomberg has resisted calls to raise income taxes on the richest New Yorkers, such as himself, opting instead to hoist the city government onto the backs the city’s poorest citizens. The billionaire mayor has proposed to raise the city’s sales tax, which, at 8.25 percent, is already among the highest in the country, by an additional half-cent on every dollar. He also wants to eliminate the exemption for clothing expenditures of less than $110.

Many cities’ dependence on sales taxes for revenue is a pernicious phenomenon. Sales taxes are deeply regressive. Since wealthier people spend a smaller portion of their income, they effectively pay a lower tax rate. So, a janitor who buys school clothes for her kids will now have to pay more in taxes, while an investment banker putting an addition on his summer house in the Hamptons pays nothing.

To my dismay The New York Observer, which was once as I recall a sensible liberal paper, applauds Bloomberg for his elitism. 

Resisting the “tax the rich” pleas from several Democrats and union officials, Michael Bloomberg has again shown he’s a mayor who understands how a major urban economy works, by proposing a slight, though nevertheless historic, increase in the city sales tax rather than supporting an income-tax increase on New York’s wealthiest residents….

As much as we don’t like tax hikes, the sales-tax increase is palatable. For starters, a sales tax taxes consumption, not income—it doesn’t punish New Yorkers for doing well.

Indeed, it will instead punish New Yorkers for getting laid off. And the Observer trots out an absurd canard, the notion that higher tax rates will cause massive flight to the suburbs, that has suckered city governments throughout the country into bending over backwards for corporate and wealthy interests.

“If the city were to tax top earners on top of this, how long would it be before those die-hard New Yorkers start pricing homes in Connecticut and New Jersey?” asks the Observer. Um, how about never? By definition, if they are die-hard New Yorkers a little tax increase would not make them give up the aesthetic and cultural superiority of an urban lifestyle to live in New York’s banal suburbs. What strikes me as infinitely more likely is that middle-class New Yorkers who can get to New Jersey will go there to buy things like air conditioners, televisions and clothes to avoid New York City’s ever-more confiscatory sales tax.

Meanwhile, over in Providence, Mayor David Cicilline proposes adding a $300 per year tax on students at private colleges. Unlike millionaires, colleges cannot threaten to leave town. This move strikes me as sheer political opportunism. As public policy it is pretty unfair to apply a tax to students who, in some cases, are not actually wealthy and cannot easily afford it. If the school communities are taking more than they give back to the city financially—and I highly doubt that they are—then the schools should be taxed at the top, not the bottom. Unfortunately, with cities across the country facing severe budget shortages, more unwise tax increases will be in the offing elsewhere, unless the federal government steps in with more aid next year.

Note: The original blog post said the tax would be 50 cents on every dollar, rather than a half-cent per dollar.

Ben Adler reports on Republican and conservative politics and media for The Nation as a Contributing Writer. He previously covered national politics and policy as a staffer at Newsweek, Politico and the Center for American Progress. Ben also writes regularly about urban and environmental policy, and he was a 2008-2009 urban leaders fellow at Next American City.

new york city ben adler michael bloomberg urban nation connecticut new jersey providence sales tax david cicilline new york observer

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