The Independent Budget Office (IBO) today released Taxing Metropolis: Tax Effort and Tax Capacity in Large U.S. Cities, which shows that in 1997 local government taxes in New York City absorbed $7.99 of every $100 of city taxable resources-17 percent higher than the city with the second highest tax burden and 79 percent greater than the average burden in the nine most populous cities outside NYC. Since 1997, however, tax cuts have reduced NYC's tax effort by about 8 percent, narrowing the gap with other large cities.
IBO's new methodology provides the most accurate picture to date of cities' local tax effort by comparing all local taxes, including those levied in cities by school districts and counties, with total city taxable resources-consisting of resident household income and local business profits.
Taxes in different cities have often been compared without properly including all overlapping local government taxes or all taxable resources. For example, omitting school district and county taxes can overstate the gap between NYC and other large cities since NYC schools are funded out of city taxes while the schools of nearly every other large city are funded by separate school district levies.
The report highlights NYC's unique tax diversity. While other large cities tend to rely primarily on just two taxes-most often property and sales taxes-NYC relies heavily on personal income and business income taxes in addition to property and sales taxes. Yet even if these income taxes were not included, NYC's tax effort would exceed the other cities' average.
"Decisions on tax policy changes must be grounded in a thorough understanding of the current system," said Ronnie Lowenstein, IBO Deputy Director and Chief Economist. "By providing a more accurate picture of how the city's taxes compare with other large cities and the impact of recent tax cuts, IBO hopes to inform the upcoming budget deliberations."
In developing its measures of total local taxes and total taxable resources, IBO also found that:
- Total local taxes collected in New York City were $19.6 billion, greater than the next nine largest cities combined ($18.8 billion).
- City government taxes are 96 percent of NYC's total local taxes, but they account for only 46 percent of the other cities' local taxes-the balance being made up of school district, county, and other local taxes.
- There have been significant cuts in almost all major tax categories since 1997, the fiscal year of this study. Had current tax policy been in place in that year, NYC's total local tax effort would have been about 8 percent ($0.64) lower.
Last week IBO released a related study, Comparing Homeowner Tax Burdens Across New York State, which focused on how tax burdens on New York City homeowners compared with the burdens on other homeowners in New York State. This study found that the combined burden of local property and personal income taxes on NYC homeowners was 6 percent above the average of the rest of the state, and even was higher than in the surrounding suburbs. Adding local sales tax moves NYC homeowners to 11 percent above the average for other homeowners in the state.
IBO is an independent city agency whose mission is to provide non-partisan budgetary, economic, and policy analysis for the residents of New York City and their elected officials, and to increase New Yorkers' understanding of and participation in the budget process.