November 12, 2008
NYC May Raise Income, Sales, Property Taxes to Cover Budget Shortfall
In Midst of Financial Crisis, Bloomberg Considering Up to 15 Percent Increase in Personal Income Tax, Making It By Far the Highest State-Local Combined Rate in the Nation
Washington, DC, November 12, 2008 - With the financial crisis and economic slump creating an approximately $4 billion budget shortfall for New York City in FY 2009 and FY 2010, Mayor Michael Bloomberg has proposed $1.5 billion in budget cuts and $1 billion in tax increases.
In Tax Foundation Fiscal Fact No. 155, "NYC May See Higher Income, Sales and Property Taxes," Tax Foundation Staff Economist Josh Barro analyzes the Bloomberg administration's tax package which includes property tax increases by cancelling a $400-per-taxpayer rebate and accelerating a 7 percent rate increase (generating $832 million in revenue), as well as increasing certain fees and fines (generating $123 million in revenue) through the hiring of 234 new traffic enforcement officers and a new five-cent-per-bag fee on disposable plastic shopping bags.
The Bloomberg administration has floated a number of other avenues for raising additional revenue, but it has not specifically endorsed them yet. Headlining the list of considered proposals is an increase of up to 15 percent in the city income tax. New York City residents already face the highest combined state and local income tax rate in the country: a top marginal rate of 10.498 percent, edging out California's 10.3 percent. However, while California's top rate applies only to taxable income over $1 million, New York's top rate hits many more taxpayers, becoming effective at just $50,000 in taxable income for a single person. A 15 percent surcharge would increase the top city tax rate from 3.648 percent to 4.195 percent, and the top combined city-state rate to 11.045 percent, by far the highest in the country.
Also being considered are an increase in the city portion of the sales tax (currently 4 percent, to 4.125 percent or 4.25 percent), elimination of the city sales tax exemption for clothing, and imposition of tolls on four free bridges across the East River.
Barro mentions that one interesting aspect of Bloomberg's proposals is that many of his "creative" sources of new revenue are not the usual fare.
"So-called creative revenue sources are often narrow-based taxes on economic constituents with little political power," Barro says. "Rental car and hotel taxes, borne by taxpayers who don't vote in the taxing jurisdiction, are common examples. Many of Bloomberg's proposals, on the other hand, such as tolling more bridges and expanding the sales tax to clothing, appear to bring the tax code closer into line with sound tax policy while raising more revenue."
Fiscal Fact No. 155 can be found at http://www.taxfoundation.org/publications/show/23925.html.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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To schedule an interview to discuss these tax proposals, please contact Matt Moon, the Tax Foundation's Manager of Media Relations
