Stupp: NYC should abolish its income tax

The top of a form 1040 individual income

The top of a form 1040 individual income tax return. (March 23, 2006) (Credit: Getty Images)

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With Mayor Bill de Blasio's first budget kicking in this month, New Yorkers should be grateful that Albany blocked his proposed increase in city income taxes for higher earners. In his budget presentation, however, the mayor announced his intention to again lobby for income tax hikes before long.

As more states propose abolition of income taxes, a locality like our city that imposes such a tax stands out, especially when coupled with high state taxes. North Carolina has created a lower, flatter tax as an interim step toward abolishing its income tax. Proposals in Louisiana and Nebraska to eliminate income taxes are moving forward. Seven states refuse to levy income taxes, and 10 governors proposed income tax cuts last year.

NYC is among a handful of cities and localities that tax their citizens' income. Only Philadelphia, D.C. and Scranton, Pa., approach our city's top marginal rate of 3.9 percent of income -- on top of our high state income taxes. Of the 18 million Americans who live under regimes that impose city income taxes, nearly half -- 8.4 million -- are in New York City. Gov. Andrew Cuomo was forthright: "New York has no future as the highest taxed state in the country."

At least 2 million New Yorkers can recall that friendlier time when the city did not tax incomes. The tax was signed into law by then-Mayor John Lindsay in 1966.

With de Blasio having pressed for higher taxes, what would it take to bring us back to 1965, when the city was not taxing incomes?

New York City plans to spend $75 billion in fiscal year 2015, and city income taxes will account for $9.5 billion of the total budget. But if our city could save a mere 1 percent from each year's budget -- about $750 million -- we could eliminate the city income tax in the range of 12 to 14 years.The $9.5 billion we will collect in NYC income taxes is not too much more than the increase in city pension expenses during the Bloomberg administration. Sadly, the City Council grew de Blasio's budget by $1.3 billion, delaying efforts to abolish the income tax.

Some of my liberal pro-tax friends simply do not appreciate how mobile the wealthy can be.

A classic example is Tom Golisano, the billionaire founder of Rochester-based Paychex Inc. He ran for governor three times, but warned that increased taxation would lead him to move his residence from New York. In 2009, Golisano took about 90 minutes to complete paperwork and become a Florida resident. He needed only to spend some more time each year in his second home to make Florida his new official residence for tax purposes.

Hoping to raise more revenue by taxing someone like Golisano, the actual results are this: New York State loses $13,800 a day in state taxes thanks to just this one man's move. That's nearly $5 million in taxes lost each year just by chasing one successful individual out of our state. Who's making up the losses?

Of course, there is always that idealistic, quixotic suggestion that by trimming our bloated city budget just 1 percent each year, we can abolish our city income tax in the foreseeable decade of the 2020s. Imagine Golisano and others moving to New York City -- the tax haven of the future!

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