Monday, November 10, 2008

Bell Tolling for New York's Tax Payers

With the news that the cash-strapped MTA is contemplating tolling the East River bridges, it's time for the city's tax payers to get ready for an all out assault on their wallets. As the NY Post wrote yesterday: "In a report expected on Gov. Paterson's desk next month, members of the Ravitch Commission - a 13-member panel appointed in June to identify solutions to the agency's financial crisis - will recommend collecting tolls at all or some of the city's East River."

Needless to say, this isn't going over well with many New Yorkers: "The very idea of new tolls on the Brooklyn, Manhattan, Williamsburg and 59th Street bridges leaves many motorists and business people sputtering mad. "That will kill us for sure," said Marie Vitten, manager of Exclusive Lighting on the Bowery, who called the proposal "ridiculous" and said she would lose customers."

Marcia Kramer underscores the popular mood: "That's crazy," said Alex Shaw of the Bronx. "We're taxed enough. They've got to get the money from someplace else. Stop putting it on the motorists." Added James Yglesias of Brooklyn Heights: "You can't punish us for driving." "For me, it's not good," said Jorge Morena."

But under the cover of a tolling of the bridges lurks that old mayoral favorite-congestion pricing. As the NY Daily News tells us: "Both City Hall and Albany would have to approve the wallet-busting plan because the city owns the four bridges and the Metropolitan Transportation Authority is a state agency. A source revealed that Mayor Bloomberg's full congestion pricing plan is also back on the table."

It almost makes you want to see the mayor run for a third term-just to see if millions will trump grass roots anger. But the plight of the motorist is the tip of the tax iceberg. The plans of the mayor and speaker don't stop there-with property and income tax hikes looming large on the city's political horizon.

This doesn't sit well with the Manhattan Institute's Nicoole Gelinas, who writes the following in the Wall Street Journal: "Last week, Mayor Mike Bloomberg announced a grim update to New York City's $60 billion budget. To meet falling revenues he proposes spending cuts and property-tax hikes, and he may increase income taxes by 15%."

This doesn't bode well for the city's economic prospects, especially as the financial sector shrinks-perhaps permanently: "Today, things are different. The financial-services industry could be at the beginning of a long-term correction that will leave profits much lower than they had been. Wall Street's business model -- of taking ever bolder risks with shareholders' and lenders' money and reaping fees from ever-more-complicated proprietary financial products -- now appears to be dead. Consequently, high finance may shrink as a share of the national economy and the city's economy, not just temporarily but for a decade or more.To plan for this risk, the city needs to respond with structural spending reform and tax policies that create new revenue sources."

Unfortunately, this kind of reform agenda is alien to Mayor Mike; and his response to the budget crisis could well be a cure worse than the disease-with higher taxes slowing even further the economic growth the city vitally needs. The Wall Street fall off is just that severe, and even finance will be sensitive to a high tax environment:

"To understand just how dependent upon Wall Street New York City's budget has become, consider these facts. Two years ago, a third of all the wages and income in the city came from the finance, insurance and real-estate industries, up from just a quarter a decade earlier. The securities industry alone was responsible for a quarter of wages, up from 17% from a decade earlier.

The city also depends on its top 1% of earners -- many of them tied to the financial industry -- for nearly half of its personal-income tax revenue, up from 41% from last decade. The financial sector provides more than a third of business taxes. Last year, Wall Street bonuses alone comprised 8% of the city's personal income. In 2000, the peak year for tech-bubble bonuses, they comprised 6.6%."

The trained incapacities of this mayor leave him clueless to do the kind of innovative things that the city government needs to respond to the seriousness of the crisis we're in. Innovative in business, Bloomberg has been pedestrian in his approach to governance. That posture was able to be sufficient as a Wall Street post 9/11 revival overcame the mayor's tax hiking, and economy slowing, proclivities.

Times are radically altered today. Tax hiking, and toll impositions on motorists, is exactly the wrong response-something that the city's voters are starting to understand. As Gelinas warns us: "The city has to change. Right now, it can do so willingly. In two years, it may not have that luxury."


The NY Post chimes right in on this theme this morning in the paper's lead editorial:

"At the same time, Bloomberg's plan to hike taxes yet again is most disappointing: On property taxes, he's immediately canceling his $400 rebates and phasing in a 7 percent tax hike sooner than planned. Plus, he's pumping up fees and levies in other areas as well. It's risky: The city's tax burden is not too low, but too high. Raising it further will do little to help local businesses, or to keep folks employed, or to bolster a sagging economy that produces the very revenues Mike seeks. Still worse, the mayor has floated the idea of an income-tax bump of as much as 15 percent, should it become necessary in the coming months. If that's his starting point, don't even think about how large the final number will be after the big-time tax-and-spending pols get done with it."