You know you are in Never-Never land when members of a leading business group clamor for higher taxes. But that’s 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 letter—at 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 doesn’t find in your local chamber of commerce, peopled by financiers whose global businesses often aren’t connected very significantly to the city’s own economy.
Many of them seem to have little first-hand experience about the effect that the city’s high taxes have on ordinary citizens and businesses. Gotham’s 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 Journal’s publisher, has estimated, for example, that the property tax hike will cost New York’s 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 don’t 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 presumptuous—they are wrong, and they show a profound misunderstanding of New York’s economy. Small and mid-sized businesses employ up to half of all workers in the city’s 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 York’s high taxes harm the local economy is just one of the problems. Another is that New York’s 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 don’t like to be seen as grasping, uncompassionate capitalists, unwilling to lay their tribute on the altar of Gotham’s 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 interests”—as 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 city’s corporate chieftains from the sharp-penciled realities of Gotham’s 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 city’s high tax rates have cost it up to 1 million jobs.
In the last 40 years, New York City’s 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 city’s economy has fewer jobs today than it had 40 years ago. While some of New York’s business leaders have done very well for themselves during that time, New York’s 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 creation—such 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 community’s leaders, with some notable exceptions, have also failed the city’s small businesses and struggling entrepreneurs. The recent incident with Governor Pataki is just another sign of that flop.