Monday, April 6, 2009

New York To Become Ghost Town After Largest Tax Hike In History?

And two months ago one would have been almost tempted to believe David Paterson that he "will never increase taxes." Too bad that like every other politician, a little time and a ridiculous budget deficit is all it took for the governor to flip on his promise.

The New York State budget is a not a good omen for its public sector finances or the business community. Yes, the starting point was a tough one: the deficit to close was 13% of revenues, state tax collections are plummeting, it will soon cost more to take the subway than to rent a limo, and the recession is deep. But the reliance on individual and business tax increases over spending cuts may have long-term costs when you consider the following:
  • New York already has the highest personal tax burden per capita and thehighest corporate taxes per capita in the country
  • New York also already has the highest spending per capita. One example: New York Medicaid spending per capita is 45% higher than the next closest state.

So the budget, which failed to enact any significant spending reductions or fiscal reforms, is a disappointment. New York's spending appears out of control relative to its ability to sustain it, particularly once federal transfers run out. From a pure operating cost perspective, some businesses and individuals may be incented to relocate elsewhere, hence the titles on the following very troubling charts. They show where New York ranks on taxes and spending, even before the recent tax hikes which constitute the biggest tax increase in NYS history.

hat tip reader Mike.

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Anonymous said...

invert me:

"it will soon cost more to rent a limo than to take a subway ride".

Yossarian said...

I agree that NY is badly mismanaged and over-taxed. However I think this chart may be misleading in that corporate earnings and individual incomes have been inflated due to the FIRE bubble. This means per capita taxes will be declining. Unfortunately for municipal budgets and local businesses, tax revenues will decline with earnings.

Anonymous said...

question the WY datapoint on the first graph, im just surprised, no inc tax unlike many states, 6% sales tax lower than many states (at least here in teton county, 4% state, 2% county) and while i wouldnt call property taxes here low they are no where near the absurd levels of some states, i know there are other tax burdens, like inheritance or cig/gas, but frankly i would expect that to skew the results even more in wy's favor, but maybe im wrong, or maybe the method of calculation had some unusual effect

Clotario said...

You get what you pay for. You wanna live in Idaho? Go for it!

Anonymous said...

he said "idaho"... heeheehehe

Anonymous said...

Hello, author of the chart and commentary here. On FIRE comment, NY has been spending every penny (and more) of taxes on elevated incomes, and now those incomes are depressed for many years. There's no political will to adjust spending accordingly, which is a disaster for the state, since they make it up with tax increases that will prove counterproductive. Also, note that the analysis is based on 2006 data, which excludes the peak FIRE earnings levels.

On Wyoming, the Public Policy Institute data shows Wyoming as having the third highest sales taxes per capita in the country, right ater Washington State and Hawaii. Wyoming also shows up with 4th highest state/local property taxes per capita. So that's where the spending ammunition comes from. Wyoming only has 532,000 people, which is last among all 50 states; this could explain why the spending and tax situation appears elevated.

In Debt We Trust said...

Dam, NY is worse than California? That is a little hard to believe.

At least I don't have to spend money on cars here though.

MrWolf said...

Go figure. The two states with the highest spending per capita are the one's with the biggest budget problems, and also the two states that decided to solve their problems by raising their already high taxes instead of significantly cutting spending, because these politicians have a complete lack of intestinal fortitude. No wonder we are polishing the brass on the Titanic.

Anonymous said...

Is it a big surprise that revenue from personal sales tax is strongly correlated with per capita spending? It seems that the first chart is merely saying NY residents spend more and therefore pay more in sales taxes. CT, MA and HI seem like the anomalies here, plus some of the unlabeled data points towards the upper left of the trend line.

Anonymous said...

I moved to CT three years ago and i don't miss NYC taxes one bit! 44 minutes to/fro stamford and we even have a bar car on the way home.

Car service home after night on the town is only $80 or once a cabby got me for $120.

Prop taxes in stamford only 1% of property value, half a percent in G-town. NJ and Westchester are for suckers!

Now that i have you convinced, who wants to lift me out of my condo purchased in 2006 at a profit? anyone? anyone? bueller?

Anonymous said...

thanks for response on WY, was assuming the per capita analysis was a large part of the issue, still prob havent thought about this enough, but will add that in relation to our population we have a very large tourist industry, tourists spend huge sums of money, which generate large sales tax receipts for the state, also there is a large group of landowners which are out of state, and these skew towards the 2,000 acre ranch and the 2 weeks a year 10,000 sq ft mansion types

i apologize for being off topic a bit, as this post is addressing the big states and their inability to deal with reality, however, i have lived in nyc, nj and hawaii, and compared to them the tax burden here feels much much lighter

thanks for putting this stuff together and giving everyone access

Anonymous said...

No one seems to talk about the capital losses out there. Even if the market spikes, it would have to be mammoth before people even begin having to pay capital gains tax again. Kiss that cash flow stream goodbye.

Anonymous said...

comment at 2:17 pm is idiotic
does that mean that you wouldnt mind living in a state whether spending and taxation were double the levels already in play in NY? at some point, the equivalence of spending and taxation fails, since people who pay the taxes cant or wont sustain it. and if you are a reader of ZH, do you think NY will be continuing to sustain the same level of taxes?

Anonymous said...

Do I wanna live in Idaho? Hell yes. You ever been to Coeur D'Alene? I have - WAY nicer than anyplace in the shithole that is the NYC metropolitan area.

Clotario said...

I don't begrudge you that for a second, and fully agree that living outside of [shithole] New York has its definite upsides.
BUT, if your income is large enough to worry about being singled out as one of the 'Rich' it is highly unlikely that you're going to make a fraction in Idaho (or any other of the flyover states) of what you do living in/around New York.
If you're one of those sad cases who are independently wealthy and live off your dividend income, well, be sure to invest in a good pair of boots when moving to the sticks.

New York is a center of gravity. 'Idaho' was simply an example, and the real part of my statement holds - you get what you pay for.

Anonymous said...

New York 2010 = Detroit 2.0

Bert said...

I'll be relocating my small business to south Florida next year. Sixty four of my seventy employees intend to move with us. So long N.Y.