Income Tax Hikes Won’t Work

As the City Council pores through Mayor Michael Bloomberg’s budget, it seems safe to say that some council members will be unable to resist the urge to demand more tax revenue from the city’s wealthiest residents. This will make for a fine photo op and a fiery press release, but probably no more than that. If there’s one thing most responsible people can agree on, it’s the proven fact that punitive tax hikes in a poor economy can only lead to disaster.

The mayor has pointed out that about 40,000 families pay the bulk of the city’s personal income tax. And he ought to know—Mr. Bloomberg, of course, is among those who fork over millions to the city’s coffers every year. He also is correct when he notes that the wealthy are among the nation’s most mobile demographic groups. If they believe they are being taxed unfairly, they’ll move or change their primary address.

Unlikely? Tell that to anybody who lived through the 1960s and ’70s in New York, when high taxes contributed to the migration out of both the city and the state. It could happen again if demagogues and faux populists have their way.

Mr. Bloomberg has proposed a slight increase in the sales tax rather than an income tax hike on high earners. The proposed increase of .5 percent, along with other revenue measures, will help bring in an additional $1 billion a year. For an average family making about $35,000 a year, the increase will result in a tax hike of less than $200. While painful, the increase is not catastrophic.

Mr. Bloomberg also wants to extend his proposal to clothing purchases that had been exempt from sales tax. Merchants fear that New York consumers will jump on the Long Island Railroad, Metro North or New Jersey Transit to shop at retail outlets outside the city limits. That’s hardly likely. The slight savings wouldn’t begin to cover transportation costs.

Mr. Bloomberg and responsible council members are faced with the unenviable task of putting together a difficult budget in the middle of an election year. Their task is to minimize pain while doing their best to restore the city’s finances. A populist turn would accomplish neither goal. And, fortunately, it would seem that there is little public sentiment in favor of soaking the rich.

No politician likes to raise taxes and cut spending, particularly not in an election year. The mayor and Council have to manage this task without creating long-term problems. So far, they seem to be on the right track.