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Commentary By Nicole Gelinas

A Tax Cut to Save the City's Small Businesses

Cities, Cities Tax & Budget, New York City

New York’s City Council, long known as a rabid right-wing body, is pressuring Mayor de Blasio to cut a tax. No, really: The council is almost entirely Democratic. But the city’s pragmatic Democrats realize that New York’s tax burden is hurting small businesses. They want the mayor to put aside his own ideology and help them.

The tax in question is the commercial-rent tax. If you want to own a store, you’ve got to pay rent to your landlord. But in Manhattan from Chambers Street to 96th Street, you’ve got to pay tax on that rent — 3.9 percent. If your rent is $25,000 a month, you’ve got to pay nearly half of an extra month’s rent each year — $11,700 — to the city in tax.

The city implemented this tax in 1963, when it was scrounging up money to pay for higher welfare benefits. It now brings in about 1.4 percent of tax dollars. As store owners and office tenants scramble to pay ever-higher rents, tax collectors benefited. The money from this tax has soared from less than $500 million (after inflation) in 2000 to $816 million today.

But it never made much sense. As mid-Manhattan state Assemblyman Richard Gottfried (D) said Thursday, taxes should be based on profits. But rent is an expense that comes before profit. It is bizarre to tax an expense.

This compounding of costs hurts all businesses who want to rent space in Manhattan, including offices. But right now it’s particularly hard on small-business retailers who are struggling against online giants and global chain stores.

As storefronts empty, retail workers have lost jobs. New York’s retail industry grew from 287,400 jobs in 2006 to 351,900 jobs in 2015, powered by global tourism and an expanding population. But retailers have made big cuts in the past two years and employ just 343,500 workers.

The Whisk kitchenware store in the Flatiron District must compete with Amazon for customers desiring pots and pans. Owner Natasha Amott said Thursday that her business also must pay $15,000 in commercial-rent tax. “We should not be hurting retail businesses . . . that try hard to support New York City residents with quality retail employment,” she said.

But it’s not just retailers. Daycare owner Beth Garcia watches New Yorkers’ kids as they work — and must rent retail space to do so. “The tax takes a big chunk of revenue every month where that money could go to toys for the kids,” she says. She notes, too, that her employees, like many people who work in Manhattan, are middle-class New Yorkers from other boroughs.

Local politicians cannot solve all problems, but they can help with this one. Manhattan Council members Dan Garodnick and Helen Rosenthal have proposed a bill to eliminate the tax for businesses paying less than $500,000 in annual rent (the current cutoff is $250,000).

Unlike with many of its taxes, the city can do this without state permission.

The council should really kill the tax altogether — but this bill is real help. If de Blasio were to sign it, he’d help 3,400 smaller firms — and make the difference, in many cases, between staying open or not.

And the change wouldn’t hurt the budget. Though the fix would help 40 percent of small businesses, the city would only lose 6 percent of the money it gets from this tax, as larger chain stores and corporate tenants would still be on the hook.

“There are things that we can and cannot do,” said Garodnick. “This is one thing we can do. This one is an example of the city itself stepping on the necks of small businesses. We can deliver them relief today.”

Garodnick and Rosenthal have rounded up 33 of their colleagues (most of the council) to support the bill. And in its budget negotiations with the mayor, the council as a whole has suggested this reform. So the hold-up is de Blasio. In the budget for next year he released last week, he didn’t include this tax relief.

This omission isn’t shocking. The mayor only thinks about taxes when he wants to raise them, even during boom times when the city has plenty of money. De Blasio doesn’t think New Yorkers can do much on their own. The government must hike taxes to help them.

In this case, though, capable business owners just need to keep a little bit more of the money they work so hard to earn.

This piece originally appeared in the New York Post


Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.

This piece originally appeared in New York Post