Resisting the “tax the rich” pleas from several Democrats and union officials, Michael Bloomberg has again shown he’s a mayor who understands how a major urban economy works, by proposing a slight, though nevertheless historic, increase in the city sales tax rather than supporting an income-tax increase on New York’s wealthiest residents.
The mayor wants to raise the city’s portion of the sales tax by 0.5 percent—which, when combined with the state and transit portions, would raise the tax to 8.875 percent, admittedly one of the nation’s highest. The last time the city raised its sales tax permanently was in 1974. In addition, the mayor wants to impose a five-cent tax on plastic bags, and remove the sales-tax exemption of clothing under $110. The combined taxes would bring the city an estimated $1 billion a year.
As much as we don’t like tax hikes, the sales-tax increase is palatable. For starters, a sales tax taxes consumption, not income—it doesn’t punish New Yorkers for doing well.
Furthermore, Albany already passed a tax hike on New York households earning over $300,000—the lion’s share of whom reside in New York City and the surrounding suburbs—in addition to canceling $1.5 billion in property tax rebates. If the city were to tax top earners on top of this, how long would it be before those die-hard New Yorkers start pricing homes in Connecticut and New Jersey?
It’s unfortunate that City Comptroller (and declared mayoral candidate) William Thompson and City Council Speaker Christine Quinn have both come out swinging against the mayor’s sales-tax proposal. Their penchant for playing the populist card is wearing thin in a city of ambition, whose economy depends heavily on a constantly regenerating professional class choosing to buy homes and raise families within the five boroughs. And those who earn more, spend more; they’re hardly immune to the sales-tax increase.
It would be nice, of course, if the mayor could close the budget gap simply by cutting expenses, but it is futile to think so. What’s more, this modest sales-tax increase will prevent layoffs and furloughs—both of which would depress the economy and imperil services.
Another bold and necessary move is Mr. Bloomberg’s proposal to add a fifth tier to the city pension system. The city’s pension costs are projected to increase from $6.3 billion this year to a staggering $9.6 billion in seven years. Under the mayor’s plan, money would be saved by creating a fifth tier for newly hired workers, requiring them to work longer before receiving a pension. The municipal unions will raise a ruckus, but the move is entirely consistent with private-sector trends, and indeed will help those unions avoid layoffs.