Cuomo Achieves Bipartisan Tax Deal

New York State Governor Andrew Cuomo successfully pushed through a measure to prevent the expiration of the so-called "millionaire's tax" as he seeks to reduce future budget deficits.

Millionaire's Tax?

In 2009, prior to Governor Cuomo's election to his current post, the New York State Legislature adopted higher taxes on “high earners” ($200,000+) in the form of a temporary surcharge that applied only to high earnings.The net effect of the surcharge was an increase of more than 30% in the highest effective rate for personal income taxes. The tax was due to expire at the end of 2011.

The surcharge was called a "millionaire's tax" despite the fact that more than three-quarters of those paying the tax were earning less than $1 million per year.

Many have argued that the "millionaire's tax" reduces economic growth, penalizes small businesses, and does not create enough tax revenue to make up for the economic burden it imposes.

Others have argued that in an era of huge budget deficits, we need to require the highest earners to pay higher taxes in order to avoid raising taxes on those with modest incomes.

With a $3.5 billion deficit looming for next fiscal year, Cuomo sought (and obtained) an extension of the tax surcharge.

Tax Increase or Tax Reduction

The extension was accompanied by other tax changes, and those changes raise questions about whether we should view the recently adopted tax changes as a tax increase or a tax reduction for high earners as well as for every level of earner in NYC.

Opponents of the tax surcharge see it as a tax increase. The tax surcharge would have expired at the end of 2011, and therefore, its extension is an increase in tax rates for high earners versus what those high earners would have paid without an extension.

Supporters of the surcharge see it as a tax reduction. Because of the changes in the tax rules that accompany the extension of the surcharge, every level of earner who pays New York State personal income tax will experience a reduction in tax liability in 2012 versus what was in place in 2011. 

Cuomo 2016

The tax deal that Cuomo engineered in New York State by achieving virtually unanimous support from the Republicans and Democrats in the State Legislature, Cuomo establishes himself as one of our country's few bi-partisan leaders and links his name to one of very few bi-partisan success stories.

Cuomo contrasted his Albany achievement with the gridlock and failure in Washington DC in his video explaining the tax deal. He now starts to look like a potential top-tier candidate for the Democratic nomination in 2016. If he can win a second landslide in 2014 and maintain his streak of bipartisan successes, Andrew Cuomo will emerge as an obvious contender for the top of the national ticket in 2016.

Cuomo has not proven that he can win the enthusiasm of African Americans, but he has proven that he can lead a large state, earn the support of Republicans and Democrats, and speak directly to the voting public with great effect.

Bloomberg's Foot-In-Mouth Disease

Last week, Mayor Bloomberg's dwindling popularity intersected with his insensitivity to people of modest means to create two embarrassing gaffes.

First Gaffe - "No Panhandlers in the Subways"

Last week, Mayor Bloomberg declared, in a very condescending tone, that there are no longer any panhandlers in the subways in New York City.

The statement left many of the Mayor's constituents shocked and puzzled. In an era of economic challenges and record homelessness in our city, the Mayor's "no panhandlers" statement suggests that he is both ignorant of the experiences of non-billionaire New Yorkers as they commute on the subway and that he is underestimating the level of suffering occurring in our city.

His condescending tone suggests that not only was he unaware that panhandlers are a major part of the subway experience but that he was very certain that panhandlers have been eliminated during a period in which homelessness and economic distress are rising. The Mayor embraced regressive taxation and has intensified the distress of low-income New Yorkers by requiring them to pay a larger share of our city's taxes. His erroneous view that panhandling had been eliminated may be influencing his willingness to demand that low-income New Yorkers take on some of the tax burden previously endured by higher earners. He needs to be reminded that regressive taxation reduced economic growth. Even if homeless were not at all-time highs, we should not ask low-income residents to pay more while high earners pay less.

Second Gaffe - "Parents Don't Understand the value of Education"

Mayor Bloomberg closed out the week by stating, "There are some parents who . . . never had a formal education, and they don't understand the value of education. The old Norman Rockwell family is gone. Some of these kids don't have parents. There's nobody to stand up for them."

Public Advocate Bill de Blasio responded calling the Mayor's comments "profoundly disrespectful" and by stating, "As a public school parent, I believe that the Mayor should admit that he made a mistake and apologize."

Other parents were outraged. "How dare he say we don’t know what we’re talking about!” said, Zakiyah Ansari, a parent organizer with the Alliance for Quality Education, an umbrella organization representing more than 200 parent, teacher and student groups. “How dare he assume that because we’re poor or black or Latino or homeless or all of the above, that we’re uneducated, that we don’t know what’s best for our kids!”

The Mayor's performance with regard to education has obtained the approval of only 20% of public school parents (amongst all New York City residents, only 25% approve of the performance of the Mayor with regard to education). The Mayor is now resorting to attacking the victims of his failure to deliver quality education to our city after 10 years in office. This shameful behavior comes as he asserts that our city's subways no longer have panhandlers despite the record homelessness that came into existence under his watch.

Unfortunately, his third term as Mayor does not end until 2014.

Soda Taxation Frustration

Mayor Bloomberg and Governor Paterson have erred in pushing for a "soda tax" in New York. The plan to tax non-diet soda at 1 cent per fluid ounce is both regressive and illogical.

Regressive Taxation . . . Again?

We have been very critical of Mayor Bloomberg's love of regressive taxes. In 2009, the Mayor relied on regressive taxes to close his budget gap.

Regressive taxes should be avoided. By asking those with the lowest incomes to pay more of their income in taxes than those with the highest income, we increase inequality, punish poverty, dampen spirits, and promote social ills. We also lose moral authority. For privileged people to demand more of those with lesser privilege than they do of themselves creates an impression of reverse-Robin Hood politics - shifting wealth and income from poorer individuals to wealthier individuals based on a belief that wealthier people will make better use of the wealth being shifted. Mayor Bloomberg, as a multi-billionaire, may hold a view that wealthier people should have greater wealth than they do today and that poorer people should have less, but such a position is political untenable, morally repugnant, and contrary to basic principals of macroeconomics. When poorer people obtain additional wealth, they increase demand in the economy, which creates jobs and increases profits for businesses. Wealthier people are more like to save or invest additional cash - activities that are not unhealthy but that cannot create the level of economic growth that consumer spending does.

Ironically, the Mayor is supporting Governor Paterson in this regressive soda taxation effort. Paterson is likely the most progressive Governor in the history of our state, but he seems to be willing to ask the poor to fund his budget gap because the gap is so large. He should find another way.

A soda tax would take a far larger share of income from poor and low income New Yorkers than from those more fortunate. It is a classic regressive tax, and unlike cigarette taxes, it cannot successfully be defended on the basis of a claim that soda consumption is uniquely dangerous or unhealthy.

Illogical

Advocates for the soda tax have attempted to justify it as a health measure, but making such claims undermines the credibility of the advocates.

Soda is singled out for taxation on the basis of its contribution to obesity, but candy bars, cakes, cookies, pies, and ice cream would not be affected. Can anyone argue that we should encourage New Yorkers to eat more candy bars and ice cream but drink less non-diet soda as our strategy for reducing obesity in New York? Even amongst drinks, soda is not the worst offender. Soda and orange juice have approximately the same amount of sugar. Grape juice has 70% more sugar than soda. If it is sugar consumption which we want to reduce, we should tax grape juice as well as candy bars and ice cream before we go after soda.

Also, obesity is a result of excess calories and a lack of exercise. We could subsidize exercise, tax calorie consumption, or tax excess weight itself of we want to encourage healthier behavior. Perhaps the Governor should set up weigh stations for people; if people are found to have lost weight based on voluntary official state-sponsored weigh-ins, they should be eligible for a tax credit.

The search for additional government revenues should focus elsewhere. Soda is not the source of our problems, and it shouldn't become our whipping boy.

Rangel Takes the Lead with Haiti Tax Bill

Last Week Was an Amazing Week

On Tuesday, the Democratic Party suffered a major set-back in the race for the Massachusetts seat in the US Senate held for decades by Ted Kennedy.

Harold Ford and Andrew Cuomo continue to move toward challenging fellow Democrats for the US Senate and for Governor against our friend Senator Kirsten Gillibrand (the US Senate's youngest member and perhaps the member with the brightest future) and Governor David Paterson, Respectively.

Errol Louis summed up the state of the Harold Ford for Senate effort in yesterday's New York Daily News.

Harold Ford's problems in trying to unseat Sen. Kirsten Gillibrand go way beyond his amusing, near-total ignorance of New York's geography, culture and politics. The doors shutting in the face of the newcomer from Tennessee are being slammed by activists who have every right to wonder where Ford has been the last few years, as ferocious battles over serious issues were taking place.

Cuomo is much better positioned to challenge our Governor than Ford is positioned to challenge our Senator, and Cuomo is expected to announce his intention to seek the Governor's Mansion at the end of March. The poll numbers and campaign war-chest figures make Cuomo the favorite at this time, but the primary is eight months away.

In the latest polls, Cuomo has a 64% job approval rating compared with Paterson's 31%. Cuomo also has $16 million in his war chest, while the governor has just $3 million.

Last week, Haitian relief efforts continued, and despite the passage of more than a week since the devastating earthquake hit Haiti, survivors were rescued as late as yesterday.

As New York's rescue team in Haiti returned to us, House Ways and Means Chairman Charlie Rangel made the most of his persuasive position as the leader of the tax-writing committee in the US House to bring additional support to the Haitian relief efforts.

Rangel to the Rescue

Last week, the US House of Representatives passed unanimously a bill proposed by Charlie Rangel to accelerate the deduction, for tax purposes, of charitable contributions made to support Haiti. While charitable contributions made in 2010 would typically be available to taxpayers to reduce taxable income only when filing taxes in 2011 (April 15, 2011 would be the filing deadline), Chairman Rangel convinced the US House to allow taxpayers to deduct 2010 charitable contributions from their 2009 taxes if the contributions are made before March 1, 2010. The impact is obvious. By allowing taxpayers to take advantage of tax deductions twelve months earlier than would typically be permitted, Chairman Rangel is making financial support of the Haitian relief efforts more economically attractive and, thereby, driving increased giving to the Haitian people during this difficult time in the their country's history.

The US Senate followed Chairman Rangel's lead and passed his bill last week by a voice vote. It now heads to the White House for the President's signature before becoming law.

We can add the people of Haiti in 2010 to the long list of individuals and groups that have benefited from the extraordinary leadership of Chairman Rangel. Let us hope that our fellow Americans, who have been quite generous with regard to Haiti, are inspired by the accelerated tax benefits to be even more generous during this time of need.

Correcting NYC Corrections

NYC is now investigating why it hired a convicted criminal who led a robbing and shooting spree (that resulted in a death) as a teenager to be the firearms instructor for the NYC Department of Corrections. The same firearms instructor is now being investigated for buying illegal weapons. We should keep a careful eye on this process to see if the Bloomberg Administration has a double standard.

When Plaxico Burress shot himself in the leg accidentally, the Mayor demanded that he be prosecuted to the full extent of the law. He was sentenced to jail time, despite so many New Yorkers' views of his crime as victim-less. In the case of the NYC Department of Corrections, a violent gun incident in the life of a city employee seems not to have prevented him from being the firearms instructor. We'd like to imagine that we'll find that we have uncovered an honest mistake, but the record suggests that we're just finding new evidence of the injustice of the Bloomberg approach.

Obama Attacks NYC as NYC Extends a Hand to Haiti

Last week, the President declared that he is seeking a new tax on the financial services sector, and the tragedy unfolding in Haiti captured the attention of the people of our city.

Obama's War on NYC Continues

We have come to expect the Obama Administration to attack NYC, but we are having difficulty understanding why the President's dislike of New York City would cause him to undertake policies that threaten to undermine the overall US economy.

During the early part of 2009, we focused on the counterproductive attacks on NYC that were originating in Washington, DC. We were alarmed when the Congress and the President sought to outlaw bonuses of more than 1/3rd of salary at each of the institutions that took TARP money (even at the institutions that took TARP money because they were ordered to do so by the Treasury Department), and we were stunned when the House of Representatives voted to tax Wall Street bonuses at a 90% rate.

We were frustrated when the President attempted to order our Governor (the first African American Governor in the history of our state) to step aside and leave the Governor's mansion to another Democrat, and we were disappointed that the President was unwilling to support Bill Thompson's campaign to become the second African American Mayor in the history of New York City.

But, we had started to look at 2010 as a new beginning - the start of an era of cooperation between New York City and the federal government. We were wrong.

Last week, the President declared his intention to proposed a 0.15% tax on the liabilities of large financial institutions. The President's advisors estimate that 60% of the anticipated $117 billion in government revenue achieved by this new tax over 12 years would come from the 10 largest financial institutions. He made this declaration despite the fact that credit availability in our country is still inadequate, and despite the fact that the financial services sector's largest institutions have paid back their TARP money with interest. The federal government has already made a 14% return on the TARP money that was provided to the financial sector, and the federal government ownership of many of the financial sector's institutions will lead to even greater returns.

Someone has convinced the President that the banks will start lending more money to more credit-worthy individuals and institutions if the federal government requires more of the assets of the banks to be sent to the federal government as tax payments. The logic is very difficult to understand unless we see this latest maneuver as part of a pattern of anti-NYC policies coming from Washington, DC.

We applauded when Governor Paterson addressed the need for all New Yorkers to work to defend the financial services sector from these types of attacks with his remarks in December 2009.

He addressed the issues by stating, "You don't hear anybody in New England complaining about clam chowder. If you say anything about oil in Texas, they'll string you up from the nearest tree. We need to stand by the engine of our economy in New York State, and that engine is Wall Street."

He also used his Twitter account to reinforce his views. "Iowa, corn. Michigan, autos. Texas, oil. NY, Wall Street . . . We must stand behind the engine of our state's economy & strengthen it.""If we support Wall St, and make the tough choices necessary to stabilize our state, Wall St will help NY as we build a New Economy."

Ironically, the latest attack by President Obama is targeted specifically to New York City. The Detroit auto industry (Chrysler and General Motors) was a major recipient of TARP money, and the Washington DC based Fannie Mae and Freddie Mac were bailed out by the federal government. Yet, none of those private companies' shareholders are being asked to pay additional taxes to the federal government. The financial services sector, headquartered and concentrated in New York City, will pay the tax on behalf of all of the sectors that benefited from TARP. Paterson was correct to assert that we need to speak more aggressively in favor of our city and our state. Clearly, the Michigan politicians have been successful in convincing the President that New York should pay the bill for the disastrous state of the Detroit auto industry.

We need to fix this problem quickly in order to promote a healthy economy for our country as well as to promote fairness for New York.

Haitian Relief Efforts

New York City is home to the largest number of Haitians in the world outside of Florida and Haiti itself.

We have a special connection with the Caribbean national that led the way toward the emancipation of slaves. Because the Haitians freed themselves from slavery in the early nineteenth century, freedom of Black people throughout in North America became a goal for many. Haiti paid dearly for its leadership with regard to notion that human beings should not be owned as property - Western nations abused Haiti and demanded enormous payments from Haiti in order to allow goods to flow to the nation. Western nations were determine to discourage others from seeking freedom by making life in Haiti as horrible as possible, but the Haitian nation persevered and has remained free for two centuries while still suffering from the legacy of abuse from the outside.

You can help the recovery effort in Haiti with your gifts. The number of organizations poised to turn your gifts into a brighter future for Haiti is seemingly endless, but the need is equally daunting. If you have already provided aid to Haiti, we thank you.

If you are planning to offer support but have not had the time to do so, we hope that you will choose an organization and make a contribution today.

Another Bloomberg Blunder - And - Albany Reloaded

Three days ago, Mayor Bloomberg announced retroactive raises for his senior staff members, demonstrating once again his unlimited arrogance.

Separately, New York State Senator Pedro Espada came full circle in his turncoat / traitor odyssey and rejoined the Democratic Party to give the Democrats a 32 to 30 majority in the New York State Senate. As part of his double-cross of the Republicans, Espada will be elevated to the role of Majority Leader in the New York State Senate. So, it seems that crime does pay after all.

Bloomberg's Retroactive Raises

Mayor Bloomberg has surpassed his previous demonstrations of arrogance with his granting of retroactive raises to nearly 7,000 members of his staff. In essence, the Mayor's team will receive bonuses representing the additional earnings they would have received if the raises had begun 16 months ago. They get a 4% raise for all of last year and a 4.16% raise for all of this year.

As absurd as the bonuses and raises appear on their face, a broader context illuminates how unacceptable this latest mayoral maneuver really is.

1) The Mayor demanded that City Council change the City Charter to allow him to seek a third consecutive term, despite two referenda in which the people of New York City voted overwhelmingly to disallow Mayors to serve for three consecutive terms. In arguing for the third term, Bloomberg has suggested that the intense economic and fiscal crisis facing New York City requires keeping Bloomberg in power (ignoring the fact that Bloomberg got us into this mess). Bloomberg's answer to the economic and fiscal crisis is to give huge bonuses and raises to his staff. Now, at least one of the Deputy Mayors will have a higher salary than the salary provided to the Mayor's office by law. The third term seems unwise.

2) At Manhattan Viewpoint, we have been highly critical of the Mayor's decision to use sales taxes to balance the city's budget. The Mayor's obsession with protecting high earners from taxation has resulted in a painfully regressive budgetary approach that relies on poor people to pay more taxes to fill in the budget gaps created by the economic downturn and by the Mayor's unfortunate reliance on Wall Street revenues during his first 1.5 terms. It is ultra-shameful that a mayor who so thoroughly believes in regressive taxation would be so generous to his own senior staff during a fiscal crisis. He is demanding that poor people pay more so that he can pay his top advisers more.

3) Bloomberg is setting a record pace for stopping and frisking people of color. He has given the crime of "walking while black" the official City Hall stamp of approval, and his administration is retaining all of the personal information of those that are stopped. 90% of those stopped are non-white even though whites who are stopped are 2.5 times more likely to have illegal substances or weapons in their possession. Yet, Bloomberg will stop and frisk more people of color this year than any mayor has ever stopped in New York City.

4) The Mayor chose to reject federal aid from the Obama administration because it would have expanded the availability of food stamps to more poor people.

Bloomberg is demonstrating the type of leadership that suggests he should have had only one term and should certainly not attempt to impose a third term on our great city.

Albany Reloaded

Pedro Espada came roaring back into the Democratic Party late last week. Given his weaknesses and challenges, no one should be pleased that he is now the New York State Senate Majority Leader. While the Democrats have waited about 70 years for the opportunity to set the public agenda for New York State, relying on the loyalty and leadership of Pedro Espada is not at all consistent with the progress we must make in our state. He is more likely to be indicted or declared ineligible to hold the office to which he was elected than to turn out to be a leader that we should admire. For now, Espada's latest move puts the Democrats in charge of the New York State Senate. Given the Democratic control over the State Assembly and the Governor's Mansion, the Democrats are now responsible for making tangible improvements and have no excuses and no one to blame but themselves if they fail.

Lt. Governor Controversy

Governor Paterson appointed a Lt. Governor last week despite guidance of the New York State Attorney General and from decades of precedent that suggested that he did not have that power. While we are not qualified at Manhattan Viewpoint to challenge the Governor or the Attorney General on the proper interpretation of the New York State Constitution, we certainly are qualified to state the obvious: a Lt. Governor chosen under circumstances that many credible people see as unconstitutional will be bogged down in litigation and will not be legitimized until all legal challenges to his appointment have been defeated.

The Governor's choice, Richard Ravitch is an excellent choice in terms of a person whose intellect and integrity are unquestioned. We just may not get the opportunity to benefit from the services of this superb public servant for weeks and months while we wait for the legal process to come to some conclusions about the legality of the appointment.

Bloomberg's Regressive Budget Solution

The latest budget proposal from Mayor Bloomberg avoids making tough choices and takes a regressive approach to increasing revenue for NYC. We are surprised and disappointed by the approach taken by the Mayor's finance team, and we are expecting voters in our city to note that the Mayor who called himself indispensable is showing himself to be anything but indispensable.

Budget Mess

Mayor Bloomberg says that he is indispensable and that we must re-write the rules that govern our great city (the world's greatest city by any objective analysis) to allow him to serve a third term as the city's chief executive. But, he also says that his 7+ years in leading our city have led us into a fiscal crisis. The two concepts are incompatible. If Bloomberg has led us into the mess we're in, how can he argue with a straight face that he is the only person prepared to clean up his mess. As President Barack Obama stated in one of his most effective attacks on Secretary of State Hillary Clinton when they were both US Senators fighting for the Democratic Party's nomination for President of the United States:

"Once we had driven the bus into the ditch, there were only so many ways we could get out. The question is: Who's making the decision initially to drive the bus into the ditch?"

Indeed. Who drove us into this ditch?

Who was at the helm when we developed the $4 billion deficit we now endure? Could the person who led us into the ditch possibly be indispensable as the leader to help us dig out of the mess he created?

The current mayor in New York City has a tremendous challenge in front of him in terms of explaining why it was important to overturn the will of the voters to allow him to seek a third term and why he, of all people, should be in charge of leading the city through this dark time after his leadership brought the darkness to us.

In a poetic move that underscores the lack of creativity and the lack of leadership in the Mayor's office at this time, the Mayor unveiled his budget last week, and he was proud to announce that he was leaving it to the individuals with the lowest incomes to fill the budget deficit by paying higher taxes.

Ugly Solution

Regressive taxation should be avoided. By asking those with the lowest incomes to pay more of their income in taxes than those with the highest income, we increase inequality, punish poverty, dampen spirits, and promote social ills. We also lose moral authority. For privileged people to demand more of those with lesser privilege than they do of themselves creates an impression of reverse-Robin Hood politics - shifting wealth and income from poorer individuals to wealthier individuals based on a belief that wealthier people will make better use of the wealth being shifted. Mayor Bloomberg, as a multi-billionaire, may hold a view that wealthier people should have greater wealth than they do today and that poorer people should have less, but such a position is political untenable, morally repugnant, and contrary to basic principals of macroeconomics. When poorer people obtain additional wealth, they increase demand in the economy, which creates jobs and increases profits for businesses. Wealthier people are more like to save or invest additional cash - activities that are not unhealthy but that cannot create the level of economic growth that consumer spending does.

Unfortunately, Mayor Bloomberg's approach to closing the huge budget deficit that emerged under his leadership is to raise revenues for the government through a regressive sales tax increase. The sales taxes are implemented as an equal percentage for all purchasers. Therefore, those with the lowest incomes will pay the greatest percentage of their income in sales taxes. This proposed sales tax increase takes a regressive tax and amplifies its impact.

Ironically, anyone could have proposed placing the burden on the lowest earners, and such a suggestion is far more aggravating coming from a billionaire than from a Mayor of lesser means. Yet, the billionaire Mayor who says he is indispensable has nothing more to offer than to increase the most regressive tax we have in our city's system.

It Gets Worse

The Bloomberg budget proposal includes many other objectionable provisions, but its most glaring flaw is that it conveniently avoids hard choices and offers no long-term solutions. It is a stop-gap, election-year gambit, and we doubt that the sophisticated people of New York City will fall for this gambit.

Interest groups are attacking his cuts in homeless services.

Others concerns include his reliance on cuts in the city payroll and his reduction in services in New York City's correctional facilities.

We are focused on the disconnect between Mayor Bloomberg's self-described role as the indispensable redeemer of our city's fiscal and economic health and his real-world role as unimaginative regressive-tax promoting politician. His recent performance helps explain why he will not agree to limit his campaign spending.

We hope that you will demand better performance from the Mayor as he closes out his second term and morphs into a full-time candidate.

Tax Day in Manhattan - 2009

Two days from today, it will be Tax Day in Manhattan as well as in all of the other 3,141 counties in the United States. This is an excellent time to look carefully at the level of taxation we face here in what is truly the capital of the world.

Tax Burden Falls Heavy on Manhattan

As taxpayers across our country prepare for the deadline for filing their tax returns, we look at the tax burden of our county, New York County, which is synonymous with the borough of Manhattan and find that Manhattan residents have a greater tax burden than residents of any other county in the United States.

Manhattan's highest-in-the-country tax burden is 20% of income, more than one-half of one percent higher than the next closest county, which is Fairfield County, a Connecticut county in the New York City area and the home of General Electric. Westchester County, the county immediately to the north of New York City's Bronx county, ranks as the fourth most burdened county in terms of taxes with a burden of 18% of income. Elsewhere in the top ten are two New Jersey counties in the New York City area. Those counties are Somerset and Morris counties.

Of the most taxed Congressional districts, three of the top five are in Manhattan, and the most taxed Congressional district in the country is the Manhattan district represented by Carolyn Maloney.

Manhattan's tax burden will likely increase in the near future as income tax increases are a part of the plan for future federal budgets and are already included in the New York State budget for next year. As we have stated previously, increasing taxes in New York State is a necessary evil, while the increase in federal taxes would be a mistake representing a poor understanding of macroeconomics. Because the New York State budget must always be balanced, revenue increases or budget cuts (or both) are necessary during economic downturns. The federal budget should run into deficit spending during economic downturns to spur economic growth. Unfortunately, our national leadership in Washington, DC is now planning to raise taxes despite the economic challenges facing our country, and those tax increases (particularly when coupled with the New York State tax increases already adopted by the New York State legislature) will increase the gap in tax burden between Manhattan and the rest of the counties in the United States.

New York State Also Leading the Country in Tax Burden

For nearly every year of the last 30+ years, New York State has been the most taxed state in the United States. From 2006 to the present, New York has been the second most taxed state in the country (New Jersey replaced New York as the most taxed state in 2006).

Therefore, Manhattan residents live in the most taxed county in the country and are surrounded by other counties with high tax burdens in a state that ranks second only to its neighboring state as the most taxed state in the United States.

Manhattan's Voice Is Needed

As we stated in the aftermath of the election of President Barack Obama, Manhattan led the way in the financing of the successful Obama campaign.

It is important that Manhattan, which has the greatest tax burden and played the greatest role in the election of the current President, have a strong voice in national policy. The leadership of our country has been on the attack against Manhattan for many weeks, and Manhattan must fight back. Our place as the capital of the world should give us the confidence to fight back. Our position as the most tax-burdened county gives us ample moral authority to demand that we be heard.

Balancing the Budget in Albany During a Recession

Leadership in Albany is often criticized, and none of us have forgotten the study that showed the the New York State legislature was the most dysfunctional in the United States. The events of the last two days might be a sign that Albany is changing in ways that are healthy for New York State, New York City, and our borough of Manhattan.

Democratic Control Means Democratic Responsibility

The State Senate is in the control of the Democrats for the first time in many decades, and the Democrats now control the entire legislature and the Governor's mansion. It is far too early to give the elected leaders in Albany an overall grade, but they deserve extra credit points for the compromise they have reached regarding increasing tax revenues  to bring the New York State budget into balance in the coming fiscal year and those to follow immediately thereafter. During a recession, taking steps aimed at generating economic growth or avoiding steps likely to deepen the recession are paramount. The tax compromise reached in Albany late last week has all of the appearances of an honest attempt to solve two incompatible problems, increasing state government revenues and avoiding further harm to our state's economy.

The Democratic Party must continue to make these good-faith attempts to do what is right in these complex and controversial areas. It will not be easy, but it will be necessary. If the Democrats cannot develop a record of good-faith hard work and compromise in Albany, there won't be anyone willing to see the blame for those failures as shared with the Republicans. The Democrats must deliver or find themselves back to the structure of the past several decades, where Republican control of the State Senate made success on nearly all controversial issues impossible.

As we said the night of the November 2008 elections: 

With control of the Executive Branch and both houses of the legislature in both our nation's capitol and in Albany, the time has come for Democrats to deliver for the people. No excuses, and no blaming the Republicans . . . This election is the beginning of our journey rather than the end.

Economic Growth and Government Budgets

During economic downturns, the United States federal government should increase spending (and perhaps reduce taxes) in order to spur economic growth. The reduction in tax revenues from the reduced economic activity (coupled with lower taxes, potentially) and the increased government spending combine to result in deficits (or lower surpluses). The goal of ending recessions creates the environment in which deficits increase.

At the state level in the United States, budgets are less flexible. New York, like all fifty states, is required to have its revenues match its expenditures in each year's budget. It would not be wise to allow states to create deficits unless the sizes of those deficits were strictly limited. The capital markets would find it difficult to absorb the financing of large and growing deficits from fifty states, and only the Federal Reserve can create new cash. States would not be able to provide adequate certainty of repayment without strict limitations. The requirement of a balanced budget can promote longer recessions and slower recoveries by forcing state governments to reduce spending and raise taxes when the economy is in need of the opposite.

Here in the New York State, the government in Albany is in just that dilemma, and they are making the best of a bad situation.

Higher Taxes That Could Have Been Worse

Higher taxes, especially in a state like New York that is already at the top of the list of the states who impose the largest tax burden on their residents, are unwelcome and counterproductive. They are also often necessary during difficult economic times, and we are in such times.

The budget that is very close to becoming law in Albany could have been much worse on the taxation question. Many groups pushed for permanent or long term levels of much higher taxes. Others pushed for increases in sales taxes. Because both ideas were rejected in favor of a small increase in income taxes (a one percent increase for those earning over $250,000 per year and another approximately one percent for those earning over $500,000) for only 3 years, we should take a moment to appreciate the wisdom of the Governor, the State Senate, and the State Assembly in compromising amongst each other in what must appear to each of them to be a "no-win" situation.

New York State already relies heavily on regressive sales taxes, and because of that reliance, New York State's overall tax scheme is regressive (meaning that it imposes the greatest tax burden, as a percentage of income, on New Yorkers with the least income). Adding large new sales taxes to the New York State tax scheme would have made that bad situation worse.

A long term increase in income taxes would likely result in reduced economic activity as the workers subject to the higher tax rates move to other states or otherwise alter their economic behavior to reduce their tax burden. At least as important is that New Yorkers would reduce their spending to account for the reduced take-home pay resulting from the higher taxes.

With a short-term tax increase, New Yorkers are far less likely to reduce spending, leave New York State, or take other counterproductive actions that could have resulted from a longer term tax increase. The potential negative consequences are also mitigated by the small size of the tax increase. 

In the end, the leadership in Albany deserves credit for a job well done on taxes, and they are unlikely to be praised for it. Let's hope that they continue to pursue responsible compromises and earn praise in the months ahead.

Tax Changes to Create Affordable Housing in Manhattan

Efforts to increase the amount of affordable housing in Manhattan take many forms. Some of the most powerful efforts involve changing the incentives in the private sector to spur growth in the number of affordable units. In a recent example, Manhattan Borough President Scott Stringer, State Senator Jose Serrano, State Assemblymember Denny Farrell, and Governor David Paterson worked together to remove significant incentives for owners to leave property vacant in Upper Manhattan. They accomplished this change in incentives by harmonizing the tax treatment of vacant property in Upper Manhattan with the treatment of vacant property in the rest of the borough.

Locating the Vacant Properties

One of the catalysts for this change was Manhattan Borough President Stringer. In 2006, his office launched the first ever large-scale, street-by-street count of abandoned buildings and vacant lots in Manhattan. That survey helped to identify possible locations for the creation of more affordable housing and led to greater understanding of what causes buildings and lots to lie unused when the demand for housing is so high. Based on survey results, in 2007, the Borough President released a report entitled No Vacancy: The Role of Underutilized Properties in Meeting Manhattan's Affordable Housing Needs. http://www.mbpo.org/uploads/NO%20VACANCY.pdf

Two of the report’s key findings were that the vast majority of vacant property in Manhattan is located in Upper Manhattan and that half of all of the vacant property in Manhattan is privately owned.

Specifically, the report highlighted that:

• 2,228 properties in Manhattan appear to be vacant or have vacancies; 1,723 of the properties contain built structures, and 505 are empty lots
• Enough developable space exists on these vacant lots and enough residential units exist in these vacant buildings to create nearly 24,000 units or one in eleven of the 265,000 housing units the NYC Mayor Bloomberg has said are needed to meet our city's future population growth
• 50% of the vacant properties are privately owned, while only 6% are government owned and 3% are owned by not-for-profit entities
• 74% of vacant residential buildings and 71% of all vacant lots are located above 96th Street, in Upper Manhattan
• $5 to $10 million in property taxes are lost annually because vacant lots above 110th Street are taxed as Class 1 residential properties
  

Changing the Incentives

Based on the findings of the No Vacancy report, State Senator Jose M. Serrano and Assembly Member Herman D. Farrell, Jr. introduced state legislation (S.6207-B/A.8666) that amends the Real Property Tax Law to equalize the treatment of vacant land throughout Manhattan by placing all vacant land into Class 4. The legislation encourages the development of much-needed affordable housing in Manhattan by allowing property owners to remain in Class 1, and therefore stay in a lower tax bracket if they file plans to develop affordable housing. It also provides financial penalties for owners who warehouse vacant properties, and it gives the city additional tools to work with owners to foster the creation of affordable apartments, along with more than $5 to $10 million in new tax revenues.

Governor Paterson signed the legislation into law on July 25th, 2008, and it will take affect on January 1, 2009.

Private Sector Solutions

This change in the NY State tax laws improves the likelihood that the private sector will invest in affordable housing and reduces the chances that valuable land will be underutilized for long periods of time. Rather than placing the government in the driver's seat for determining the future of the privately owned vacant properties in Upper Manhattan, these tax law changes leave the private sector flexibility. Owners can pay higher taxes than they did previously (but not any more than they would pay if the property were elsewhere in Manhattan) while keeping their properties vacant, or they can develop those properties and avoid the increased tax burden. By shifting the incentives for Upper Manhattan property owners in the direction of the creation of housing, NY State is enlisting the private sector to help accomplish the public goal of increased affordable housing while increasing tax revenues.