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Steven Malanga
Shocked—Shocked—by High Taxes
Will the CBC’s new report get Empire State lawmakers to act?
21 November 2003

A recent study by the Citizens Budget Commission that describes New York State’s high taxes and bloated government has provoked a sudden outcry of alarm from politicians, policy makers, and journalists. They are shocked—shocked—to find that New Yorkers pay the steepest state and local taxes in the country, just like Captain Renault in Casablanca, who declares that he is closing down Rick’s place because he is “shocked” to find gambling going on there—moments before a waiter hands him his own gambling winnings.

So excuse me if I am skeptical of all the shock being professed. While the CBC has performed a valuable service with its study—because one can never be reminded enough just how heavy the tax burden is in New York—it in fact tells us little that is new. The real test will be whether those now claiming to be shocked will fight for basic reforms to alleviate some of the onerous burden on New York taxpayers.

In its study, the CBC concluded that New Yorkers are dishing out $141 in taxes for every $1,000 of personal income—well above the national average of $112. The local government tax burden is especially heavy, the CBC study found—72 percent above the national average. The root of the problem is a combination of outsized spending on programs like Medicaid and swollen government employment at both the state and local level. Governments around the state, the study found, employ on average 508 workers per 10,000 residents, 25 percent higher than in other states. New York City, with 579 workers per 10,000, is a dizzying 42 percent above the national average.

But the situation that the CBC describes has existed in New York State for years, and numerous studies have documented it. Nearly 15 years ago, for instance, a report by the Business Council of New York State found that state and local taxes were 37 percent higher than the national average—tops in the country. A 1994 analysis by City Journal found, if anything, state and local taxes were even more steeply out of whack with national averages. In the ensuing years, groups like the Tax Foundation in Washington, D.C., have regularly ranked New York among the most heavily taxed states.

Some of the heavy state and local burden is attributable to Gotham’s steep tax rates, the CBC study tells us. Again, no shocker. A 1989 Business Council study found that Gotham had the highest taxes of any major city, beating out second-place San Francisco by a wide margin. A decade later, New York City’s Independent Budget Office determined that the city’s tax load was 75 percent higher than the average of the next nine largest cities. Viewed in that light, the CBC study seems like depressingly old news.

The CBC’s analysis of government hiring and Medicaid spending is similarly familiar. A Public Policy Institute study from more than a decade ago concluded that local governments in New York State employed 23 percent more workers than the average. And the number of studies that have chronicled New York’s overspending on Medicaid relative to the rest of the nation—currently at about 50 percent above the national average and nearly as large as the next two largest states combined—are too long to list here.

The real news is not New Yorkers’ high tax burden but the fact that nothing changes despite years of close study of the state’s crushing levies. There are a number of clear reasons to explain this lack of reform. One is that, as the years have gone by, those responsible for driving much of this spending have only increased their power in Albany. In particular, public employee unions have become the 800-pound gorillas in Albany, continually negotiating expensive pension sweeteners and favorable contract rules, while successfully derailing efforts to shrink the size of government. Public employees, through their unions, are now not only among the biggest political contributors in Albany but spend more money lobbying in the state capital than any other interest group, and they have been especially effective lately with alarmist radio and TV ads targeting any politician who dares suggest restraining the growth of New York State’s spending. These ads have more than once sent Governor Pataki, among others, scurrying for cover.

At the same time, the Albany legislature has gradually gerrymandered the state so effectively that most Assembly and Senate districts are now safe seats that rarely switch parties. The New York State legislature’s practice of fixing election districts is so egregious, in fact, that the Center for Voting and Democracy ranks the Empire State dead last on its Democracy Index of the states because of the persistent lack of competitive congressional races here. State legislators do an even better job of protecting themselves through redistricting.

As a result of these gerrymandered districts, the only thing that most legislators have to do these days to stay in office in New York is avoid angering their own party bosses and provoking a challenge to their seat from within their own party. The situation has effectively emasculated most legislators and legislative committees, making them subservient to a party leadership whose chief interest is in keeping the special interests in the state supporting and contributing to the party. With legislators thus more closely focused on their leaders’ desires than their constituents’ interests, grassroots reform has become almost impossible.

The CBC urges a series of structural reforms of New York’s government to help restrain and discipline the state’s fiscal practices. But in truth, structural reforms of this kind are only part of the solution. What New York really needs is reform of its political culture, so that its statewide party leaders again become responsive to local needs, not special interest demands.

The chorus of disapproval that has accompanied the CBC study—coming from both sides of the political aisle—may be the start of that process of reform, but only if it is genuine and sustained. Some local political leaders say they are so frustrated that they are taking the campaign to the people. The county executives of Erie and Chautauqua have launched a local petition drive to demand Medicaid spending restraint from Albany. Nassau County Executive Thomas Suozzi has promised to oppose Albany legislators on both sides of the aisle who vote against the interests of his county by imposing new costs on it.

Are these legislators serious? And will their efforts find support from more powerful statewide figures like Attorney General Eliot Spitzer and State Comptroller Alan Hevesi—who have gone on record professing concern at the CBC report? Or will political leaders and policy makers head for the hills once the inevitable counter-push begins by those who have the most to gain from the current system? How these issues play out will determine whether anything changes.

Early in Casablanca, Rick tells Captain Renault, “I stick my neck out for no one.” Much of the rest of movie is about how he comes to change his mind about that notion.

New York’s political class will have to undergo a similar transformation if the state’s ways are ever to be reformed.

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More by Steven Malanga:
Why the State and Local Pension Problem Will Get Worse
Grassroots Soccer Mania
Brennan’s Revenge
More . . .
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