Taxes and Consequences: The Gotham STAMP 2006 Computable General Equilibrium Model

Significant changes in state and local tax rates can have significant consequences for New York City’s economy. But how do we measure and predict those consequences? To answer that question, the Manhattan Institute’s Empire Center for Public Policy has commissioned an updated and upgraded version of the State Tax Analysis Modeling Program (STAMP), developed by the Beacon Hill Institute at Suffolk University in Boston, Mass.

Our new model, known as Gotham STAMP 2006, is a Computable General Equilibrium (CGE) model. This means it is larger and more complex than the NYC-STAMP model first used by the Manhattan Institute to study the effects of tax policy in the late 1990s. (See Methodology for details.)

Applied to recent tax developments and potential future changes in tax policy, Gotham STAMP 2006 generates these findings:

• Federal tax rate increases would significantly undermine the city’s recent growth trend. Even a federal income tax hike limited to restoring the pre-2001 top bracket would cost New York more than 8,000 jobs.
• Rolling back the city’s record 2002 property tax rate hike would boost overall employment in the city by about 15,700 jobs.
• Eliminating the remaining Dinkins-era surcharge on New York City’s resident income tax would increase overall employment in the city by nearly 26,300 jobs.
• Retaining the income tax surcharge and postponing the scheduled “sunset” of temporary higher rates in upper income brackets would reduce overall employment by 4,400 jobs.

These numbers are grounded in fundamental, generally accepted economic principles. Higher income taxes reduce the incentive to work, save and invest in New York; moreover, they can prompt some taxpayers (especially upper-income earners) to migrate to lower-taxed jurisdictions. Increases in sales taxes hurt the economy by increasing the relative cost of products sold in New York.Property taxes directly affect the cost of living and doing business in New York. In sum, taxes have pervasive economic effects, which Gotham STAMP 2006 is designed to capture.

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