A friend here in Massachusetts was singing the praises of New York’s Mayor de Blasio for adding taxes on high-earners in order to reduce income inequality. It sounds reasonable on its face, but then I remembered my helicopter student, age 39 and about to retire from NYPD on a 100% pension. He was up in Boston attending Harvard’s Kennedy School of Government, courtesy of New York City taxpayers and, once done he was planning to retire to his native Philippines and have New Yorkers wire him money every month.
Since government workers are paid, on average, more than private sector workers, mightn’t extra taxes that actually increase income inequality? State and local governments overwhelmingly spend money on salaries, health care, and pension benefits for government employees. (See http://seethroughny.net/payrolls/city-of-ny and http://seethroughny.net/index.php?cID=189 for some public-employee salary and pension data.)
Suppose that the tax rates are left unchanged. The high-income New York City resident now has the money to go out for some additional restaurant meals. for example. Many restaurant workers earn less than average and probably nearly all earn less than city employees.
What do readers think? Will inequality of income go up or down in New York City with this new tax?
[Personally I think that the new tax might not result in much additional cash being collected. A certain number of New Yorkers who currently spend 140 days per year in (potentially tax-free) places other than New York City might decide to start spending 183 days in those places (see this article on what people are doing already). A handful of businesses will move to places with lower tax rates. So more money will be collected from those who stay for at least 183 days but there will be fewer people from whom to collect tax. This could be a positive for helicopter charter operators as more people try to get out to the Hamptons before midnight (which would tend to reduce income inequality, since helicopter pilots make a lot less than school teachers or police officers!).]
[There is no question that New York's government needs the money. The Tax Foundation says that New York needs to collect 12.77 percent of state residents' income in order to function (probably higher in the city). This compares to 7.9 percent in Texas, 8.1 percent in New Hampshire, and 10.4 percent in Massachusetts.]