Is New York Facing a Financial China Syndrome?

51JYTR29A1L._SL500_AA240_We have previously discussed the dangers of increasing taxation in places like New York city. Now it appears that the city is facing a tax-version of the China Syndrome where over-taxation may be causing wealthier families to flee, which increases the need for higher taxes on those remaining.

I remain concerned about the incredible spending in Congress and rising taxes in the states as politicians seem to have lost any sense of proportion or balance in buyouts, recovery bills, and public spending. Even the Washington Post is now warning of a “debt tsunami” as the Administration drives up the deficit — already pushed to extremes by George Bush. We are now piling on debt faster than gross domestic product and the CBO is reporting that the publicly held debt of the U.S. government will reach 82 percent of GDP by 2019 — roughly double what it was in 2008. Yet, the Administration is still piling on spending bills and new programs with enthusiastic support from the Democrats. Countries like China have been complaining for months about the disastrous spending spree in the United States and debt overload, here.

The Democrats have been calling for more taxation on the national level which will likely not only drive down some investment but drive many voters back into the arms of the GOP. Obviously, this is hardly fair given the ruinous spending and economic policies of the Bush Administration, but Democrats have shown little restraint in either spending or taxation proposals.

While politicians often insist that they are demanding that people pay their fair share (which is valid in many instances), it often ignores that a small percentage of taxpayers pay the vast majority of taxes. Somewhere between 39 percent and 50 percent of Americans pay no federal income taxes at all. This is not to belittle the fact that there is a huge disparity in wealth, but cities like New York risk a meltdown over these heavy taxation approaches. In addition to new heavy taxes for the city, New York state is ramping up taxes, here.

More than 1.5 million state residents left for other parts of the United States from 2000 to 2008 and, of those, 1.1 million, were former residents of New York City — meaning one out of seven city taxpayers moved out.

The problem is that, in terms of only income taxes, the top ten percent of taxpayers pay over 70% of the taxes, here. . The top twenty-five percent pay roughly 87%. Not only are those citizens more able to move to more attractive jurisdiction, but they are also the financial engines for recovery for cities like New York. (This obviously does not include sale taxes and other form of taxes, but the rising taxation levels appear to have had their predictable impact). Once the city tops out on tax levels, those wealthier individuals remaining may not like the city service cutbacks due to the smaller tax base — further encouraging migration. The fact is that New York needs these earners and they are leaving.

To make matter worse, the average Manhattan taxpayer who left the state earned $93,264 a year while the average newcomer to Manhattan earned only $72,726. You can do the math.

For the full story, click here and here.

19 thoughts on “Is New York Facing a Financial China Syndrome?”

  1. What!!?? New Yorkers are in the heart of the antichrist beast system in this country!! As the European Bankers control all of Europe and our International Bankers control the US!! But don’t worry!! Though they will martyr those of us who won’t be taking their zombie making Mark of the Beast Chip; we will be returning back to earth with our Great Conquering King Jesus and His angels!! And then Jesus will defeat them all in hours!! And the Great Lake of fire and brimstone shall make them all scream and holler forever and ever and ever!!

  2. This is really the equivalent of Paul Krugman writing a blog post freaking out about activist judges.

  3. What is more interesting to me are the 355,000 tax units who make over 100,000 per year and pay zero income tax!

  4. “Somewhere between 39 and 50 percent of Americans pay no federal income tax at all.”


    “According to the Urban Brookings Tax Policy Center it is true that 38% of tax units which can be singles, couples or families are projected to have zero or negative tax liability in 2009. About 60% of these households make $20,000 per year or less.
    However, being exempt from income tax does not mean you exempt from federal taxes. Everyone who works is liable for the payroll tax, and contributions to medicare & social security that come out of every paycheck.

  5. To me the obvious reason people left NYC was because of job losses, including terminations, layoffs, shutdowns, deferments, transfers, relocation, and retirements; not due to increased tax burdens.

    IMHO the people who left NYC between 2000-2008 (aside from job loss) did so because of the outrageously high increased cost of housing during the real estate bubble. (Nice 2 bedrooms were $1 million to buy and rents of $5,000 and more were common.) The increased housing costs were a much greater burden than the “increased taxes.” This was especially true for those who choose to move to NJ, PA and CT and suffer longer commutes as their taxes in many cases would be higher but their housing dollars would go farther.
    (Public schools were often usually better in suburbs of NYC.)
    Now that the bubble has burst rents are coming down and we just might see even more people returning to NYC once the job market improves.

  6. JT and Other Mr. T.

    There really is no objective data or research cited to support the claim that “1.1 million” left new York City between 2000-2008 because of the increased tax burden.

    In fact according to the US census data released in July 2009 there was a reported increase in NYC population with the largest National gain of 355,056 residents. The report also noted a numerical increase during 2007-2008 of 53,000. NYC continues to be the most populous US city with 8.4 million residents.

  7. Surprising that you are actually admitting what people in real estate industry have been quietly whispering for over 2 years now: “People are leaving New York in large numbers, no one moving to the city has a job and are in fact ‘moving back’ to be doubling up with family or going back to school on borrowed money”. I am certain the next sensus results will confirm that. I realize this is a scary time for New Yorkers who have been used to their lifestyles and routines. I, for one, welcome some creative destruction for New York City’s financial industry and look forward to the emerging business opportunities for production and innovation in the next decade.

  8. What is the proper level of taxation? Too much and your revenues are reduced too little and your revenues are reduced. I think it has become clear that too much taxation and spending is not good for a society. But what is the right level that will promote business and provide revenues to the government?

    I know most here would probably disagree with a flat tax but the older I get and the more I learn I am inclined to believe that a flat tax of 15-20% with no deductions and an exclusion for those making under say $35,000 per year, is the way to go.

    It actually frees up an incredible amount of money spent yearly on compliance with new tax laws. It would also limit the lobbying that various companies do to place themselves in a favorable position in respect to taxes.

    I truly believe that if we can promote business and a vibrant economy, enough revenue will be generated to take care of our social responsibilities. However we would need a fiscally responsible congress and a financially literate populace that would veto programs such as the “Bridge to Nowhere” and other congressional make work programs.

    I recently was looking through my current ENR (Engineering News Record) magazine and they had a list of stimulus projects and the associated cost and number of jobs created. It was not a very good ratio.

    Osage River Bridge
    Jobs Created Direct Labor: 30
    Total: 250
    ARRA Contract Amount $213 Million
    $852,000 per job

    Route 52 Causeway
    Reconstruction Phase 2
    Jobs Created Total: 500
    Current: 121
    ARRA Contract Amount $70 Million
    Actual Contract Value $251 Million
    $502,000 per job created

    U.S. Coast Guard Headquarters
    Jobs Created Anticipated: 1,000
    Number of Firms: 100+
    ARRA Contract Amount $162 Million
    Phase-One Cost $435 Million
    $435,000 per job created.

    They have included indirect jobs as well. I would say not much of a deal. And I think an argument for the private sector being able to allocate resources more efficiently.

    This is probably why government spending does not really stimulate an economy. The cost of labor is way to high.

  9. Professor Turley I can’t help but question some of this post as you use the tabloid New York Post as one of your links.

    From your post:
    “More than 1.5 million state residents left for other parts of the U.S. from 2000 to 2008 and, of those 1.1 million were former residents of NYC meaning 1 out of 7 taxpayers moved out.”

    It seems very doubtful to me that all “1.1 million(?) of the former residents” were all “taxpayers” given the demographics of NYC, and the “somewhere between 30% and 50% of Americans who pay no federal income taxes at all” that you quote.

    The New york Times in April of this year stated in “City Gears Up for 2010 Head Count” that “Based on the most recent estimates released in July (2009) there are 8,363,710 people living in NYC which is 4% more than in 2000.”

    By the way what percent of corporations pay no income tax?

  10. AH,

    That means it can’t be true then …

    Professor Turley,

    Clearly this means that New York is soon to be annexed by The Colbert Nation.


  11. Elaine M.,

    See Elaine there’s a bright side to every story!

    There are two types of people in the world Elaine and they both bring you happiness. Some when they come and some when they leave…

  12. From one of the articles Professor Turley linked to: “Buffalo Sabres owner Tom Golisano, the Paychex founder and billionaire who was paying $13,000 a day in New York income taxes, and media mogul Rush Limbaugh became ex-New Yorkers this year.”

    So Limbaugh left the state because of high taxes. See…there’s a bright side to every story!

  13. All’s people really need to know is the panic of 1873 cause a really great depression of 1893 which was felt until the great ripple in 1929.

    The primary cause was no surprise but overbuilding and greedy banks.

    Oh the great financial guru’s that have helped this country into financial disaster was predicated by the computer manufacturing crashes of the 2000’s. The bubble had burst and banks had to look else where for increased revenue and profits. Ah, the insurance companies seemed to be the next natural market, see where that go us.

    FDR was not off when he separated the Bank, Insurance and Financial Markets to where the twain shall not meet. His family suffered greatly in all of the bank failures and at that time they did not have the FDIC to cover the losses.

    If people were only aware of the historical repetition of greedy banks causing the collapses. They are insulated because who do people look at when a company has gone bad. Certainly not the Government but when banks do, hell yeah they robbed me and I want justice, and I want it now.

    The exception to the above was the Railroads (Privatized because of failure) were taken over by the Government and this included the Railroad Retirement which is the only “Private Government Funded Pensions.”

    I guess we all got married, because we have something old, something new, something borrowed something blue. And bend over and I’ll do you….

    I am from the Government and I am here to help….

  14. To make matter worse, the average Manhattan taxpayer who left the state earned $93,264 a year while the average newcomer to Manhattan earned only $72,726. You can do the math.

    You do know that NYC consists of 5 boros not just Manhattan – are there any studies which show the incomes of people who left vs the people who moved in for the other 4 boros??

  15. I hate to say this, but I think this takes an overly simplistic view of government spending. Post World War 2, I believe I’m correct in noting that the public debt of the country was something like 150-160% of GDP. To put more succinctly, desperate times call for desperate measures. Moreover, as was recently pointed out by former Regan Treasury official Bruce Bartlett, the ENTIRETY of the increase in 2009 federal deficit is due to a shortfall in revenue, not an increase in spending. In fact the $98 billion (or so) in tax cuts included as part of the stimulus bill helped drive up the shortfall. There is an extraordinarily strong argument to be made (by better equipped people than I) that the major problem with the stimulus was that it was not large enough and did not focus sufficiently on job creation.
    Where I believe this piece is correct is at the state and municipal level, where governments must both cut services and raise taxes due to an inability to operate at a deficit. This cries not for more tax cuts, but for more aggressive and broader federal spending in order to alleviate these problems. In fact, Dick Cheney was right about one thing, sometimes deficits don’t matter: he was just wrong about the when, they why, and the how.

  16. This presumes (implies?) that the primary reason people leave NYC is because of taxes?

    What about the disintigrating quality of life as the city services decline and the zietgiest of the city grows increasigly angr ad fearful?

    What about the fact that many formerly well paid Wall Steeet workers are out of work?

    I get his point, but I think he’s missing the bigger picture, too.

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