Readers of this site may be interested to find out what life is like in New York City, as told to the rest of the country by the Associated Press. “Allison Weiss Brady, 36, a venture capitalist and philanthropist who is on the board of her family foundation, said she likes to be practical when buying handbags preferring to buy bags in basic colors. Still, she spends $20,000 per season on accessories and typically spends $5,000 per bag, much more than the $2,000 she used to spend a few years ago…Nadine Absolam, a 32-year-old Brooklyn resident, says she likes to have the trendiest designer items, but she said it's getting harder to come up with the cash. ‘My first priority should be my bills. But these designers bring out so many hot items that you must have these things,’ said the Pilates instructor. ‘I am always late with my bills.’ Absolam spends about $1,000 in clothing and accessories per month, about half of her monthly salary.” The Mayor and City Council hear your pain ladies. Among all the public priorities in this over-taxed, debt-ridden city and state, they decided an elimination of the city’s tax on clothing was one of them.
Before resuming my diatribe, let me say there is much to like in the city budget.
Running against a social tide (perhaps a social tsunami), the City of New York has elected to set aside an unusually large share of the added taxes from unusually good times for the future — to pre-fund retiree health insurance and pay down debt. This isn’t quite as noble as it seems. Some of the promised retiree health insurance that will be due in the future has been promised in exchange for services provided today, so of course it should be paid for today (more is for services provided, but not paid for, in the past). And while the City of New York is paying down debt, New York City Transit is running it up, due in part to a cutoff in capital funding support from the City (and State). While the city didn’t go nearly as far as I would have liked, however, it is a pillar of virtue compared with the typical state of American public finance at the federal, state, and local level, corporate finance, and even personal finance for the Nadines of the world and those who have been living large (or, sadly, just getting by) off ever-larger credit card and mortgage balances.
Note that the lack of generational equity in today’s public policy, and the tendency to sacrifice the future (and those who will live in it) to benefit powerful interests today, is a recurring theme of mine. It was one of the factors that led me to run as a protest candidate for state legislature some years back. The offenses come in fiscal policy, environmental policy, health care policy, and public employee contracts. After a bad start the current administration, and its partners in the City Council, have shown a lot of leadership here, and I appreciate it. They have risen in my esteem.
I also appreciate the idea that libraries will be open six days a week. Unlike many public services and benefits, the libraries are there for everyone. Since “everyone” is not a powerful interest, they tend to be a lower priority. Hopefully even those who aren’t senior citizens will be allowed to go the libraries on the added days.
Another affront that has bothered me over the years, however, is the tendency of government to add handouts, favors, and breaks that accrue to narrow, already-privileged interests during good times, and then raise overall tax rates, and cut basic services, when money is tight. Since I don’t have a life goal of prospering at other people’s expense, I don’t like it when such deals benefit me. While I’m glad the $300 renter’s check didn’t go through, I’m disgusted with the $400 homeowner’s check. The sense of entitlement by my fellow homemoaners seems insatiable, with demands for more and more special treatment every year. Almost makes me feel like a slimeball to be one of them. And the exemption from sales taxes for clothing is a special deal that makes absolutely no sense. Makes me feel like a victim. So the City’s tax policies make me feel like a victimized slimeball, left to wonder if when all the deals — and their future consequences — are added together, whether I have come out ahead or behind. It’s a game a would prefer not be played.
Any tax, any fee, has the effect of discouraging what is taxed or charged for. Most economists say that everything should be taxed equally, with no breaks or favors, to let people make up their own minds. A wide tax base and a low tax rate is the most “efficient” tax system in their view, and leads to the strongest economy. As I explained earlier with regard to fees, I would in theory make an exception for higher taxes that discourage actions that are socially detrimental, imposing charges to restrain the demand for a scarce resource, and providing tax breaks to encourage (or at least not discourage) actions that are socially beneficial. But years observing public policy have led me to question the ability of governments to make such judgments fairly. In a graduate school law class, I was told a quote from a case from more than a century ago, when local governments were going broke due to money borrowed to subsidize railroads. I lost the citation and quotation, so you’ll have to trust my memory. The judge wrote (more or less) “when once the government embarks upon the business of subsidies, we shall not fail to find that the strong and powerful interests will dominate the legislature, and the weaker interests will be taxed to profit the stronger.” How true.
What is the social benefit of buying lots of clothing, especially expensive clothing, that justifies exempting it from taxation? Food, or at least basic uncooked food, I understand — it is a necessity. But people already have clothes; in fact they rapidly buy new clothes and throw old clothes away. As Nadine told AP “One of her most recent buys was a $1,100 Gucci messenger bag; her boyfriend last Christmas bought her Fendi's Spy bag,’ priced at around $3,000 and coveted by fashionistas. ‘I can't keep wearing my Spy bag. I have to change it,’ to look fresh.” Does the government want to increase knowledge? Then exempt books. Does it want to lift the spirit? Then exempt works of art, or at least newly made ones. Does it want to create employment? Then exempt items made locally, not items made (and creating most of the jobs) elsewhere. Exempt clothing from sales taxes because they are regressive? All sales taxes are regressive if they are for necessities. Most of the spending on clothing is not for necessities. It that is your concern, limit the exemption to underwear, cheap shoes, and used clothes. Yet the more items you exempt, and assuming the government must nonetheless be funded, the more you have to raise the tax rate for other things. And our sales tax rate is high and going higher in fits and starts. Like our property tax rate, it may have gone down, but not to where it was in 2000.
I understand that for years New York City has lost retail sales, and retail jobs, to the suburbs, and that retail jobs are important to the many young people leaving the New York City schools without other marketable skills. But New Jersey’s sales tax exemption was overstated as a reason for this loss; studies in the early 1990s found that New Yorkers were shopping in the suburbs for food, which was not taxed, because the city had kept new supermarkets out to benefit existing operators. By hook or by crook, large national chains have moved into New York City, and with crime down on local commercial streets new local stores have popped up and expanded as well. The result has been retail growth absent a tax break. A shortage of retail space is the real constraint.
If shopping is being subsidized as socially beneficial, what is being penalized as socially detrimental? Smoking, to a degree that even I have begun to wonder about. And starting a new business or being self-employed, thanks to the double taxation of income via the Unincorporated Business Tax. I’m not sure of the details, but the newspapers said that some UBT breaks were included in the budget. But not an elimination like the elimination of the local sales tax on clothing. Based on their job descriptions, it wouldn't surprise me if both of the women profiled by AP were being double-nailed nailed by the NYC local income tax and the UBT. Someone should ask them what they think of being penalized for working, and subsidized for shopping. What message is the city sending them here?
So now the breaks and deals go to Albany for approval. There was a time when we had a good state government and a bad city government when special deals like these would have been stopped there. Now the special deals go through without a hitch. Instead whenever the city government tries to do something right, state legislators demand even more special deals for the special people in exchange for allowing it. Allow every state legislator to hand out 100 exemptions to friends and followers and I’ll bet that congestion charge wouldn’t be “unpassable” anymore.
So I’m left to beg the Governor. The state legislation required to continue to allow local governments to impose sales tax rates in excess of 3% is up for reauthorization, or so I have read. Please, Governor Spitzer, veto authorization for New York City to exempt clothing from sales taxes, and the reauthorization of the $400 homeowner’s check. Tell the City to cut the overall sales tax rate, the overall property tax rate, and the UBT for those earning less than $200,000 instead. The Bloomberg Administration and City Council have been doing better on generational equity. Perhaps you can strike a blow for equity in general.