You know you are in Never-Never land when members of a leading business group clamor for higher taxes. But thats exactly what has happened in New York City, where a group of high-powered executives, led by financier Henry Kravis and developer Jerry Speyer, prepared a letter recently urging Governor Pataki to approve a commuter tax for Gotham. Only an eleventh-hour intervention by the governor prevented the business group from releasing the letterat least for the time being.
What could have led high-powered executives and their organization, the Partnership for New York City, to contemplate advocating for tax increases, when in all other cities similar groups are the first line of defense against such moves? Well, for one thing, New York City is home to the kind of international business executives that one doesnt find in your local chamber of commerce, peopled by financiers whose global businesses often arent connected very significantly to the citys own economy.
Many of them seem to have little first-hand experience about the effect that the citys high taxes have on ordinary citizens and businesses. Gothams recently enacted property tax increase, for instance, will fall especially hard on middle-class homeowners, small and mid-sized business owners, and operators of the kinds of low-margin businesses that are constantly struggling to squeeze out a profit in New York. The Manhattan Institute, City Journals publisher, has estimated, for example, that the property tax hike will cost New Yorks economy 65,000 jobs. But the Partnership did nothing to oppose that increase, staying deafeningly silent on the matter.
But now the Partnership, having by its silence helped make it seem as if tax increases are inevitable, is advocating for what it believes will be the least painful levy, a new commuter tax. Like billionaire-mayor Michael Bloomberg, corporate chiefs who advocate higher taxes of any kind are out of touch with their own constituencies. Just as the mayor rushed into effect a property tax increase that falls most heavily on those outer-borough Giuliani voters who elected him (he dismissed the increase with the let-them-eat-cake explanation that New York will always be a high-cost city), so Partnership members argued in their proposed letter to the governor that their employees would not be hurt by a new tax on them. We dont think it will cause great hardship or lead to significant job losses, the letter said, adding: As employers we represent most of those commuters who will be affected by this tax.
Those sentiments are not only presumptuousthey are wrong, and they show a profound misunderstanding of New Yorks economy. Small and mid-sized businesses employ up to half of all workers in the citys private sector, so there is no way that a letter signed by a handful of CEOs can represent most of those who will be affected by the tax. Moreover, the wealthy execs now backing higher taxes seem to have little sense of how much an extra $500 to $1,000 annually in taxes will matter to their own workers, especially at a time when many of these workers are facing property tax increases in their own hometowns, as well as fare increases on the subways and railroads, that collectively will add upwards of $1,000 to their yearly expenses.
Ignorance about how New Yorks high taxes harm the local economy is just one of the problems. Another is that New Yorks big-business community remains perhaps the most timid and politically correct in the nation. A number of members of the Partnership, for instance, objected to the letter supporting tax increases, but none would go on the record saying so.
These executives seem to have little empathy with middle-class workers or struggling business owners, and they dont like to be seen as grasping, uncompassionate capitalists, unwilling to lay their tribute on the altar of Gothams dysfunctional welfare state. Recently the Partnership even eliminated chamber of commerce from its name, saying that the group tries to encourage job creation and economic growth, rather than advocating for industry or business interestsas if economic growth could occur without individual businessmen pursuing their economic self-interest.
Nothing demonstrates the true tendency of the group more clearly than an incident during the Giuliani years, when city hall officials castigated the Partnership for not lending its voice in support of tax cuts. Is it a business advocacy group, or is it a social-welfare group? one Giuliani deputy mayor was quoted as saying about the Partnership.
The lofty detachment of many of the citys corporate chieftains from the sharp-penciled realities of Gothams economic life helps explain why New York has evolved into one of the most heavily taxed, heavily regulated business environments in the country, and why its government spends more per capita than virtually any other American city. Over the years there have been few effective business voices arguing for fiscal restraint and pro-growth tax policies. Instead, the city specializes in job-killing taxes. A study by City Journal once estimated that the citys high tax rates have cost it up to 1 million jobs.
In the last 40 years, New York Citys economy has been stuck in a cycle of booms and busts that never leads to any secular growth. Consequently, while the national jobs economy has doubled in size, the citys economy has fewer jobs today than it had 40 years ago. While some of New Yorks business leaders have done very well for themselves during that time, New Yorks business leaders, as a community, have failed their own employees and other aspiring opportunity seekers who might have benefited from a more robust climate of job creationsuch as New York historically boasted when it was a place where the streets were paved with gold for so many immigrants and others. Likewise, the business communitys leaders, with some notable exceptions, have also failed the citys small businesses and struggling entrepreneurs. The recent incident with Governor Pataki is just another sign of that flop.