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Tax Use and Budget Financial Plan of New York City

Introduction

New York tops the list of the states in America with the highest tax rates. At 12.7 percent of the state’s total income, New Yorkers bear a heavy local and state tax burden (Cuomo, 2018). New York’s operating fund as of 2018 was $100 billion, 79% of this is funded by taxes (Cuomo, 2018). Of all functions tax in New York has, school aid and Medicaid takes up the biggest percentage with nearly half of the spending being directed to the two. The rest of the money is shared among transportation, education, mental hygiene among others. However, the state of New York gives more to the federal government than it gets back. For example, in 2016, for every dollar New York State (NYS) sent to the federal government, it received 84 cents in return (DiNapoli, 2017). There was a deficit of about $40.9 billion between what NYS sent to Washington and what it received back, in the same year (DiNapoli, 2017). People comply in paying taxes and pay allegiance to their governments to get well-established infrastructure and services. In NYS, however, despite the high tax rates, the cost of living remains high, city streets are dirty, sordid conditions for prisoners and rat-infested subways are the order of the day.

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Taxes in NYS

NYS depends on three forms of revenue for it to run: income, property, and sales taxes. Local governments benefit from taxing real property that the NYS defines as land or any other structure that is attached to it. It is upon the local property assessors to establish the value of these properties before imposing the tax on them. The money was collected from special districts, school districts. Counties and villages funds schools, police department, maintain roads, and other municipal services. Property taxes NYS total up to about $55 billion annually (DiNapoli, 2020). For the income tax, the state imposes it on all residents and non-residents working there. NYS gets approximately $50 billion annually from income taxes, while New York City (NYC) raises $12 billion (DiNapoli, 2020). The biggest source of revenue among the three types of taxes is sales tax for a majority of the counties in NYS. The state legislature only allows a maximum of three percent for the local sales rate (DiNapoli, 2020). New York registered a total of about $15 billion from local sales.

The Tax Cuts and Jobs Act signed into law by former President Trump allowed temporary relief for individuals to lower their federal tax rates and provided corporates with a permanent reduction. Responding to this, Gov. Andrew Cuomo together with the State Legislators came up with reforms that guarded their residents against the newly introduced $10,000 limit on both state and local tax deductions. Cutting down on the reduction of state and local taxes disproportionately affected NY. Recently, to revive the state, there is a proposal to increase both income and corporate tax on the wealthy (CBPP, n.d.). Mr. Cuomo has fought this move for a long time, and yet again in a recent interview with Mr. Molaniro, he resisted it. He argued that such a move would drive businesses and investors away from NY. But who is to pay to enable the state and country at large to get to a stable state yet again? These are the important aspects they failed to focus on during the debate. The one thing that stood out in that one-hour debate was that the public’s money is not safe. Politicians barely understand the damage their half-baked policies have on the people; or are they just being ignorant?

Cost of High-Tax in NYS

One would expect that with a high tax, people’s needs would be more affordable. New Yorkers pay income tax rates within the range of 4 percent to 8.82 percent, far exceeding the national norm (Lapatinas et al., 2019). But what this does is widen the gap between the rich and the poor. A common reason cited for imposing higher tax rates on people is that it ensures that those who have had the most benefits from the last decade can pay their fair dues. This premise is flawed and there has been a surge in the gap between the two. With the labor market labor markets being globalized, less skilled people from the developing countries come into the New York, because the costs of employing people are high, hence the need to get the cheapest labor. They create downward pressure on the less-skilled workers from NYS. Those that are financially established and have invested in human capital continue to receive their high returns (Lapatinas et al., 2019). Additionally, while the average property tax on certain properties such as single-family homes is quite low, the tax rate of a 20-unit apartment complex is twice that of the national urban average.

Between 2003 and 2008, the economy of NYS was growing steadily and the expansion led by boosting local tax revenues would have been the ideal chance of the governance to reduce the city tax rates and create a less complex tax structure. However, the government of the time failed to do so and now both the federal and state governments have raised income-tax rates creating an even bigger burden for the people. These places NYS at a disadvantage in a competing world among cities that do not overburden their residents. High property taxes make it more difficult to attract businesses. Now with the proposed increase among the wealthy, it could be harder as many will be exciting.

Tax Reform and its Impact on Home Owners

In December 2017, the U.S Senate passed the tax reform bill after the U.S house passed theirs. The impact on NYS’ taxpayers, new and future homeowners was and still is immense as it provided some relief to corporations gaining more profits at the expense of homeowners in NYSS. The House bill would lower the mortgage interest for those with new ones by half and owners of second homes, this would be eradicated. When there are little to no estate-related tax provisions, very few people can own a home, creating a lower demand and reducing the property values as a result. Relief is essential, but there needs to be a real reform with actual benefits. For example, the NY-STOP (Stop Taxing Our Property) program passed by the senate allowed school districts to take a public vote to establish whether or not property taxes on primary residence would be eliminated within half a decade and in its place enact an additional state funding (Elinder & Persson, 2017). Getting involved in this program meant that the residents would realize a 20 percent decrease in residential real property tax.

The Metropolitan Transportation Authority (MTA) System

MTA is the largest transportation system in North America with a bigger bus fleet more subways compared to the other transit systems combined. It serves a large population of up to 15.3 million people covering the areas of New York City to the South eastern New York State via long Island and Connecticut (Goldbaum, 2020). As one of the world’s economic hubs, NYS deserves to have a safe, clean and efficient transport system. This way, it opens up more job opportunities and links the others to jobs miles away. In addition, it leads to a recreation of old towns by promoting business corridors and links them to cultural and educational centers. The workable mass transit system that is hard to achieve in most of the other places not only in the US but the world creates a combination of benefits that result in NYS being the world’s center of finance, culture, commerce, and education.

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In 2020, the transit system announced that it was in a financial crisis and that it required emergency federal aid. They requested $12 billion that would push them through 2021 (Wanek-Libman, 2021). MTA plays a critical role in the economic health and recovery of NY, therefore, the government failing to approve the 7 billion fund was a major risk. MTA was forced to hold its plans for converting the system into a leaner bureaucracy and instead laid off people who worked there to enable them to save money (Wanek-Libman, 2021). Currently, MTA is facing difficulties in meeting their commutes targets across the city because there is a staff shortage. The active buses are mostly fully congested at night while others remain parked because of the same reason. Passengers are complaining as this is risky for them especially now with the fast spread of COVID-19.

The troubles of MTA are far from over as experts foresee other financial threats that could hit the agency even more. Currently, more organizations are transforming how they work by having more of their employees work from home. If working from home remains at around 1.5 days a week, then the agency will realize $300 million more than what they had projected next year (2022). However, should remote work be increased to three to four days a week, the agency will take an approximate $500 million revenue hit (Goldbaum, 2020). This leaves MTA in a bind struggling to handle its main initiative of implementing congestion pricing.

Homelessness Reaches an All-time High in NYS

An income tax is a fair system that would bring an end to homelessness. This explains why Seattle City Council has a particular tax for everything including water and rideshare and an additional tax income to solve homelessness. While this might hold some truth, imposing high tax rates on residents is not the solution. NYS is a true example because even with the highest tax rates yet, NYS recorded the highest number of homeless people in 2021 since the Great Depression. By August 2021, the city recorded 47,916 homeless people sleeping in their municipal shelter system. 14,946 of this figure were homeless children and 18,326 single adults. The most effective solution is coming up with the right policies that facilitate proper movement and support is accorded to these people. Governor Hochul has taken the right step towards realizing a city without homeless people. She signed legislation that actively fights homelessness and expands housing affordability within NYC.

Currently, NY taxpayers are tasked with the burden of paying excesses of $1million every night to keep homeless people away from the streets. Since the beginning of the pandemic, the government transferred more than 12,000 homeless people from the streets and other overcrowded shelters to over 60 hotels. While this might have been a good gesture, it has caused chaos and unrest among residents near where the temporary homeless hotels are. The implementation of the newly signed bill might take a while. Therefore, the most effective and immediate solution to this menace is using the county’s land to form humanitarian zones that offer centralized services.

While in such a controlled environment, the government can establish and monitor supervised injection sites to help the addicts of opioids safe from overdoses and unnecessary deaths. Supervised injection sites remind them that while they may be addicts of different drugs, they are still human. It is impossible to help an addict to recover if he/she is dead. Therefore having a place where they can be revived by medical professionals in case of an overdose helps give them a second chance. However, not everyone agrees with this; opponents say that this is a way of encouraging addiction and discouraging treatment and healing. Research shows that the advantages of a safe injection site outweigh the disadvantages. For example, the first-ever safe facility set up in Switzerland has had more than 3.6 million people use the facility. Out of this, 6400 people reported having overdosed, however, none of them died. It also saves a lot of money and could reduce the tax burden on taxpayers.

Poor Performance among Public Schools

NY remains the top education-spending state in the United States. Schools in this state are funded by three main principal sources: local funding at 59%, federal aid at 3%, and state aid at 38% (U.S. Commission on Civil Rights, 2020). According to 2017 reports, a student in both elementary and secondary education in NY spent approximately $23,091 more than all the other states (U.S. Commission on Civil Rights, 2020). This, however, does not put into consideration cost of living differences. Locally, the neediest schools receive about 70% of all state education aid while the wealthy ones receive 14% (U.S. Commission on Civil Rights, 2020). While this allocation seems disproportionate in favor of the needy schools, the reality is that the average spending of a child in the needy school is only two-thirds that of a child in the wealthy districts. Therefore, public schools in needy communities remain underfunded making it impossible to offer sound and basic education to all children.

As of 2019, NY recorded a significantly high number of homeless children. Among children at the elementary children, 10 percent were homeless, while those in middle and high schools were at 7 percent. 95 percent of the homeless children in school were either Latino or Black (U.S. Commission on Civil Rights, 2020). These children require immense support for them to perform as well as their peers. It is impossible to offer the required support if there is an inadequate supply of resources and basic things such as food, clothing, and transport. In addition to one-on-one sessions with their teachers, they need to see other professionals such as therapists and other social service agencies.

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Conclusion

New York residents and non-residents earning from there pay the highest amount of taxes in the United States. The cost of living is equally high, dirty subways, underfunding public schools, and high numbers of homeless people, beating the logic of such high taxes. With COVID-19 taking such a hit on the economy, the state intends to increase tax rates on the high earners. However, increasing taxes is not the solution for the problems NY is facing. Instead, coming up with the appropriate policies and enacting them will have a long-lasting impact on the state. Viable policies reduce the burden from taxpayers and still establish a thriving economy.

References

CBPP. (n.d.) States “millionaires’ taxes”. Web.

Cuomo, A. (2018). FY 2018 Executive Budget Financial plan. Budget.ny.gov. Web.

DiNapoli, T. P. (2020). Understanding local government sales tax in New York State. New York: New York State Comptroller.

DiNapoli, T. P. (2017). New York’s balance of payments in the federal budget. Web.

Elinder, M., & Persson, L. (2017). House price responses to a national property tax reform. Journal Of Economic Behavior & Organization, 144, 18-39. Web.

Goldbaum, C. (2020). N.Y. subway, facing a $16 billion deficit, plans for deep cuts. The New York Times. Web.

Lapatinas, A., Kyriakou, A., & Garas, A. (2019). Taxation and economic sophistication: Evidence from OECD countries. PLoS One, 14(3), e0213498. Web.

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U.S. Commission on Civil Rights. (2020). Education equity in New York: A forgotten dream. New York: New York Advisory Committee to the U.S. Commisssion on Civil Rights.

Wanek-Libman, M. (2021). New York State Comptroller’s annual report says MTA financial outlook in precarious balance. Mass Transit. Web.

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