'Sin' Taxes Won't Save New York From Its Ballooning Deficit

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

26 November 2002

While President Bush and the Republican party discuss how much more tax to give back to the good folks who elected them, the equally-Republican leadership of New York City is looking into a black budgetary hole that no amount of tax magic will fill.

New York is not the only US municipality with a massive fiscal problem - the Office of Management and Budget is predicting a total municipal deficit of $58bn next year - but New York's $6 billion is one of the most intractable nation-wide. New York State won't be able to help much, given its own equally large deficit, and Washington, while sympathetic to Republican mayor Michael Bloomberg, is not going to be able to pick and choose its municipal charity cases.

The solution to New York's woes, immeasurably worsened by the flight of tourists and businesses that took place after 9/11, lies in its own hands; but few obvious remedies are in sight. Cost cuts and tax increases there will have to be, but something more is needed.

Casinos would make a difference: but Mayor Bloomberg has so far taken if anything a moralistic attitude towards 'sin' taxes: after slapping so much extra tax onto cigarettes that many smokers are being driven to low-tax Internet tobacco sites run out of Indian reservations, the Mayor said he would be happy if there was no income from tobacco at all - and he didn't mean anything good for e-commerce.

Seen from a distance, New York's stand against Internet gambling, indeed most forms of gambling, seems quixotic. The City's prosecutors have been in the lead in attacking offshore gambling, but they do so from a moral, or anyway judicial, standpoint, when they would do the city more good by pressing for liberalisation of the gambling industry.

Russ Smith, editor-in-chief of the New York Press, writing in the Wall Street Journal, has it right in advocating casinos in the Big Apple: 'Think this through: Tourism, which has suffered enormously, is bound to increase dramatically, drawing not only tri-state visitors, but tour groups from the rest of the country and overseas. While there's no shortage of legalized gambling in the U.S., the lure of New York could be expected to trump say, Missouri. The majority of these casino patrons would be casual gamblers, who'd typically spend three hours pulling slots, playing blackjack or roulette and then retire to a nearby hotel. Broadway, restaurants, galleries and retail outlets would inevitably see an uptick in business.

'Gambling opponents cite organized crime as a reason to nix casinos in the city. Excuse me for stating the obvious, but the mob is still well-entrenched in New York, as any business owner can attest to. Another objection is rooted in morality, a ludicrous position considering that panhandlers, three-card-monte sharks and other undesirables already roam the streets looking for easy prey. New York, "the city that never sleeps," hardly resembles a Utah community.'

Other types of solution argue for the transfer of some types of service, for instance local health-care responsibilities, to the national level. But of itself this would do nothing to save money; it would merely move costs around, and in the process no doubt increase them. Efficient government implies cost-effective government, and a solution to New York's problem will involve grasping the nettle of local municipal service provision. Neat ideas to increase revenues have their place, but confronting entrenched cost structures is unavoidable if a long-term solution is to be found to the deficit. Success in controlling cost should be the only determinant of the size of the statue Mayor Bloomberg eventually warrants.

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