Will de Blasio’s new income tax for New Yorkers actually increase income inequality?

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.]

8 Comments

  1. John Klein

    January 5, 2014 @ 8:58 am

    1

    Philip:

    If I remember correctly, believe that my father, who has an NYC pension, does not pay any municipal or state income taxes on it. I believe that’s also the case for all NYC employees that are in the pension system.

  2. Scott S

    January 5, 2014 @ 5:48 pm

    2

    I don’t think raising taxes on the upper income earners in NYC is going to address the root cause of income inequity. According to a recent article in Huffington Post (http://www.huffingtonpost.com/2013/12/19/new-york-city-immigrants_n_4475197.html) over 37% of NYC residence are born outside the United States. A majority of those foreign born residents are from the Dominican Republic followed by China and Mexico. Very few foreign born residents of NYC are from developed nations suggesting that education and skill levels are likely not well aligned with available jobs and costs of living.

    Why do so many third world immigrants choose to live in such an expensive city?

  3. Election 2014

    January 5, 2014 @ 7:08 pm

    3

    “Why do so many third world immigrants choose to live in such an expensive city?”

    I think these three factors:

    1. NYC on average pays very well compared to the national averages for people that hustle and work hard doing low-skill jobs like dog-walking, nannying, delivery, being a doorman or valet, etc.
    2. Despite average housing prices being far greater than the US, there are some cheap areas in the city.
    3. New immigrants don’t mind multi-generation homes with far greater numbers of people when compared to native citizens. There may be 5 earners in a home rather than the usual one or two.

  4. philg

    January 5, 2014 @ 8:37 pm

    4

    Scott: Good point on factoring in immigration. It isn’t reasonable to say “Look at how much more this person whose family came over on the Mayflower is compared to this person who arrived from the D.R. last week and who doesn’t speak English.”

    Why do immigrants choose New York instead of Detroit or exurban isolation? Because they’re foreign and relatively poor, not stupid!

  5. John Klein

    January 5, 2014 @ 9:17 pm

    5

    Philip: I assure you that there are plenty of immigrants (from Mexico, the middle east and even albania) in the Detroit area. My guess is that immigrants are more likely to settle where they have connections to other immigrants who have already set up stake.

  6. philg

    January 5, 2014 @ 9:18 pm

    6

    John: In the “Detroit area” or in the imploding city itself? (Though of course I would agree with you in general.)

    http://thinkprogress.org/immigration/2013/07/23/2337261/how-immigration-could-save-detroit/ says Detroit has just 5 percent immigrants compared to the earlier cited figure for NYC of 37 percent.

    http://www.thedailybeast.com/articles/2010/07/29/us-cities-with-the-most-immigrants.html has some data (Toronto, a great city if only for its colorful mayor, has 45 percent immigrants).

    http://www.brookings.edu/~/media/research/files/papers/2011/10/13%20immigration%20wilson%20singer/1013_immigration_wilson_singer.pdf (Table 2) shows that Detroit is not among the metro areas (distinct from cities per se) that attract a high percentage of immigrants. The Appendix shows that the Detroit metro area has only 8.6 percent immigrants. Chicago has 17.6. So a city that is more attractive to Americans is also more attractive to immigrants.

  7. Scott S

    January 6, 2014 @ 8:58 am

    7

    Election 2014,

    You make some good points about available jobs in NYC (dog-walking, nannying, delivery, being a doorman or valet, etc). Could it be that many of those jobs derive a significant portion of income in the form of cash which is not measured in the income inequity calculations? During the current prolonged recession, many of the unemployed with extended benefits have managed to fill income gaps with cash jobs that do not threaten unemployment benefit payments. I think there is always much more these inequity theories than meets the eye. I am fascinated that de Blasio the newly elected Mayor of NYC seems more concerned with social and welfare matters than with public safety and business matters. It makes me wonder if de Blasio has larger political aspirations.

  8. John

    January 6, 2014 @ 10:52 am

    8

    Maybe extra city tax will create a stronger incentive to move to the suburbs. High earners can moved from Manhattan to Westchester/LI/Conn and the money you save from city taxes more than pays for property tax in the suburb. In return you get great schools for kids and much better services in general. The city gets left with a bunch of commuters using its infrastructure but zero revenue.

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