Manhattan Institute Says Bloomberg Must Bite The Bullet Over New York Tax

by Mike Godfrey, Tax-News.com, New York

03 December 2001

Although before September 11th, incoming New York Mayor, Mike Bloomberg, said that he couldn't 'prudently promise' not to raise taxes in the future, after the World Trade Center attacks, he was fairly unequivocal on the subject.

'Raising taxes is not an option,' he told the shell-shocked city. 'Higher taxes are a disincentive to those considering moving into the city- and encourage those already here to leave.' However, according to policy research organisation the Manhattan Institute, the mayor-elect will have to act quickly if he intends to keep his promise.

A 'temporary' income tax surcharge introduced by former mayor David Dinkens during New York's last financial crisis is the hot topic of the moment. Although other city taxes were reduced under Mayor Giuliani, the surcharge survived at full rate until last year, when the mayor and city council agreed to cut it in half for all but the highest bracket income taxpayers. This year Mayor Giuliani shaved a further 3.5% from the surcharge for all NY taxpayers, but in August legislators passed a bill extending the full 14% through 2004, while leaving the city authorities with the option to reduce it.

In order to untangle this somewhat nonsensical state of affairs, tax experts believe that incoming mayor Mike Bloomberg has three choices. He can do nothing, in which case the surcharge will revert to the full 14%, increasing the city's tax burden by around $275 million. He can extend the surcharge, but at the lower rates reflected in his predecessor's last budget. Or, by the far the most popular option, he can effectively repeal the surcharge when he comes into office by reducing it to zero. This, according to the Manhattan Institute, would reduce the top income tax rate from 3.59% to 3.2%, although it would also create a $350 million shortfall in city revenues at a highly inconvenient time.

Although there has, as yet, been little public attention to the subject, experts have warned that Bloomberg will likely face strong pressure from unions and public sector groups to allow the surcharge to revert to 14%. However, the Manhattan Institute warned last week, this would inflict great damage on the city's already struggling economy.

Recommended