In late February, New York City's Independent Budget Office released Taxing Metropolis: Tax Effort and Tax Capacity in Large U.S. Cities, a study that shows Gotham is way overtaxed compared with other American cities. Absolutely right, as D. Andrew Austin and I argued in these pages—and, we concluded, it has cost New York 1 million jobs (see "New York's Million Missing Jobs," Autumn 1997).
The method IBO used for the study is perfectly sound and scrupulous, though it makes New York taxes seem slightly less outlandish than our study did. The biggest difference in method is that IBO focuses on taxes as a percentage of income, while we zeroed in on per-capita taxes. Using IBO's approach, New York's taxes are 79 percent higher than in other large cities, though only 17 percent higher than in Philadelphia, the next most heavily taxed city; using our approach, New York taxes are 352 percent above those in other big cities, and 240 percent above Philadelphia's.
There are two problems with IBO's study. First is what it doesn't allow you to see. The assumption underlying IBO's percentage-of-income approach is that New York is an expensive city—costs are high, salaries are high, so taxes will be high, too. The effect is to assume what is in question—that New York's high taxes are appropriate—and to minimize the magnitude of the difference from lower-tax cities.
The second problem might seem inconsequential, but it's not. The IBO study frequently uses the euphemistic term "tax effort"—as in New York City's tax effort for 1997—instead of "tax burden." The language of tax effort subtly directs one's attention to the city struggling to provide services with finite means and away from the hard-pressed taxpayer who pays for it all—an all-too-typical rhetorical trick in a city that for decades has viewed taxpayers as there only to be sheared.
These problems aside, IBO's report dramatically underscores, whether its authors wanted it to or not, Gotham's need for deep, across-the-board tax cuts if it wants to stay competitive in the twenty-first century.