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New York City Mayor Bill de Blasio has proposed a Millionaire's Tax to help pay for decaying infrastructure. In this article Frederick Floss, a Professor of Economics and Finance at Buffalo State College, discusses the costs and benefits of the Mayor's plan.
By Frederick Floss
Frederick Floss is a Professor of Economics and Finance at Buffalo State College, State University of New York, and Senior Fellow at the Fiscal Policy Institute.
New York City is like a family which takes out a home equity loan, spends it on daily living expenses and then has no money when their home needs to be repaired. The City for decades has lived off its capital infrastructure without any concern for what comes next. To be sure this is true for most cities and states in the United States. And not surprising, everyone involved is looking to deflect blame and find others to pay for past sins.
Mayor De Blasio has proposed raising city income tax rates from 3.38 to 4.41% on individual incomes over $500,000 and family incomes of $1,000,000. The City estimates this will bring is approximately $800 million per year, with $550 million going to infrastructure and the rest used to keep fares stable. When looking at current proposals, the City's needs are in the tens of billions of dollars, so additional federal and state funding will be needed to stop the system from deteriorating further. The American Society of Civil Engineers' 2015 Infrastructure Report Card estimates the City will need $68 billion over the next 20 years to repair mass transit to keep it operating. This is needed on top of the $830 million emergency cost proposal from the MTA.
Putting politics aside, the obvious question is: should an increase in the City's income tax rate be used to fund MTA infrastructure or is there a better funding source? The arguments for a progressive income tax are in general, it is efficient to collect, equitable (people with the same income pay the same rate) and meets the ability to pay criteria.
The only question on the fairness of this tax arises when looking at the benefit principle. Do those at the upper income levels benefit from the city's mass transit system and will the improvements in infrastructure be greater for them than the costs. At first blush one might not think high income individuals use mass transit and therefore do not receive direct benefits from transit improvements. That would be short sighted.
First, a good mass transit system draws immigrants into the city increasing both the economy and the tax base. A 2016 study by the Fiscal Policy Institute showed New York City's population would be over 3 million smaller without these immigrants most of who rely on mass transit. FPI further showed that immigrants pay more in taxes than they receive. Over time this means a lower tax burden, other things equal on all taxpayers.
Second, if the mass transit infrastructure is allowed to decay, fewer individuals will use it causing congestion for everyone in the City, making it more expensive for both high income individuals and business to do business.
Third, to the extent high income individuals own or run businesses in the City having a workforce who can get to work easily and on time increases profits and business owners income.
On a $1 million income the 1.03% rise in the income tax rate will amount to an increase of $10,300 which would seem to be less than the direct and indirect benefits accruing to those at the city's higher income levels. The argument about whether this is a good policy is not on cost-benefit criteria but rather on other political considerations.
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