Chasing Wealth Away

You can’t ’make them pay’

This afternoon, the “May 12 Coalition” will take to the streets of Lower Manhattan with a demand for Mayor Bloomberg: “Make Big Banks and Millionaires Pay.” But we’d all pay: The coalition’s plan centers on a massive tax hike that would send jobs and wealth away from the five boroughs.

The group comprises the usual suspects -- the United Federation of Teachers, the Transport Workers Union, the big health-care unions, the Coalition for the Homeless, etc.

No surprise: People who depend on big government want bigger government. The $49.7 billion that Bloomberg will spend next year -- up 11.2 percent from the year before -- isn’t enough. The coalition has catalogued every “devastating” budget cut, from the $515 million the mayor would save by cutting 6,000 teachers to $250,000 off a “homeless prevention fund.”

The coalition has a “solution”: Sock it to the wealthy. They want a return of the state’s temporary “millionaire’s tax,” which Gov. Cuomo allowed to expire. A year from now, the coalition says, the higher tax rate would bring in $5 billion -- with about $1.9 billion going to the city.

Not so fast. When you tax something, you get less of it -- sometimes so much less that a higher tax rate brings in fewer tax dollars.

Remember 2002, the last time the city and state faced budget crises? The mayor and the state Legislature enacted huge tax hikes, including on cigarettes -- which now give us a neat illustration of how all of this works.

In January 2002, the city and state levied $1.19 in taxes on each cigarette pack. Six months later, it was $3. In 2008 and 2010, the state hiked its butt tax again, bringing the combined levy to $5.85.

At first, it was a cash cow: From 2002 to 2003, the city’s tax take from cigarettes quadrupled to $160 million.

But since then it’s fallen by 56 percent, to a projected $70 million per year

What happened? People did what they do when faced with a higher tax: They changed their behavior. Today, New Yorkers buy little more than 100 million cigarette packs a year -- less than a third of their purchases before the tax hikes. Some folks stopped smoking -- good! Some roll their own -- or buy out of state, or from vendors who illegally sell “imported” cigarettes. Some go to Indian reservations, which refuse to collect taxes.

From a revenue perspective, all that matters is that taxing an activity -- buying cigarettes in New York -- resulted in less of it. Smokers are addicts but they still respond to much higher costs.

Today, the behavior that the advocates would tax out of existence is . . . earning six figures and higher while living in New York.

The tax hike is a whopping 31 percent increase on the rate paid by people earning more than $550,000 in adjusted gross income. Moreover, this top rate applies to all income, not just extra income over, say, $100,000. So a couple earning $1 million in taxable income would pay $89,700 a year for the privilege of living in-state (city residents owe another $36,000 or so in city taxes, too).

Further below $1 million, less aggressive tax hikes would kick in at $200,000 for single earners. “It’s odd to think you need to make $1 million every year to be a ’millionaire,’ ” a coalition spokesman told me yesterday.

Faced with such a sharply higher permanent tax rate, people will change their behavior.

Wealthy earners -- who, after all, aren’t addicted to New York -- would spend fewer days here, or none. (Yes, the state does charge by the day.) A higher tax would hurt New York’s efforts to attract millionaires who aren’t on Wall Street. Tech entrepreneurs would see that as much more reason to head to Austin and pay no income tax.

An 8.97 percent state tax rate wouldn’t end it. Gotham’s budget deficit is $4.8 billion a year from now. An extra $2 billion from Albany wouldn’t close it. Doubt that this coalition’s solution would be an even higher tax?

These are people who refuse to admit that public-sector pensions and benefits now consume more than a third of every dollar in revenue that the city takes in, harming social services.

In fact, a middle-aged teacher looking forward to a cushy retirement has little in common with Jake Carlson, a transit rider who told the coalition that “I often have to bike where I need to go to avoid the subway/bus fare, leaving me tired and sweaty.”

The protesters are performing a public service -- reminding New Yorkers how politically tough Cuomo’s job is in not raising taxes, and how taxpayers need to stand behind him.

This piece originally appeared in New York Post

This piece originally appeared in New York Post