Download Commuter Taxes in New York City: Equity and Public Goods - Prof. John Yinger and more Study notes Introduction to Public Administration in PDF only on Docsity! From: Catherine Nolan To: Professor Yinger RE: Commuter Taxes in New York City Spring 2008 It is widely accepted that large cities like New York City are the economic engines of the regions in which they are located. Beneficiaries of the metropolitan area are far greater in number than the individuals who simply reside within the city limits. An updated version of the New York City commuter tax should be implemented to better account for the costs of this benefit. First I will explain the current fiscal condition of New York City and how although commuters provide some fiscal benefits to the city, these are insufficient. Then I will address how multiple commonly-applied economics principles support the commuter tax — these include the horizontal and vertical equity principles and the benefits principle. Over time, wealthy city dwellers have relocated to the suburbs leaving inner cities financially stressed and unstable. Haughwout explains, “Today’s city populations are significantly less able to provide revenue for long run infrastructure investments than populations of the past and suburban populations” (1997). The New York City tri-state (commuter) area has a population estimated at approximately 22 million. Many of these suburbanites continue to work in New York City and demand the city’s goods and services. Over the past several years a greater proportion of earned income in New York City has been earned by commuters, individuals who reside outside of the city limits. Scholars estimate, “The share of New York City earned income going to commuters has been increasing over time, going from 34 percent in 1990 to 37 percent in 1996” and that “at least one-quarter (25 percent) of private-sector jobs were held by commuters in 1996” (Chernick & Tkacheva, 2002). Commuters create an increased demand for public services including police, fire, transit, and waste disposal among others. Public services are paid for mainly through property tax levies. The effect of this increased demand then is even higher taxes for city residents. While businesses and commuters contribute to the economy through increasing the real property tax base and the sales tax base, these contributions are not sufficient. For example: If a commuter earns a salary of $80,000 and he spends as much as one quarter of his after tax income (assuming a 35% income tax bracket) of approximately $52,000 in the city, he is contributing only $1,040 in tax dollars (assuming an 8% sales tax) to supporting provision of the public goods he demands. Meanwhile Chernick and Tkacheva estimate, “the additional New York City expenditures associated with the jobs held by nonresidents are equal to between 2.2 and 3.8 percent of total spending by the city of New York, or $ 1.2 billion to $ 1.9 billion in 1997 (in 2000 dollars). Police expenditures and fire expenditures are about $ 185 million higher due to the jobs held by commuters” (Chernick & Tkacheva, 2002). Clearly the commuter does not contribute enough to the local economy, and the current situation violates the principle of horizontal equity. Horizontal equity theory holds that individuals with the same ability to pay should pay the amount, meaning that individuals with the same salary should experience the same tax burden. One scholar, Inman reports that in the city of Philadelphia, the individual tax burden is 14.4% compared to 9.5% for the suburbanite (Inman, 2003). I suspect that the ratios are similar for individuals in the New York City area, if not even more disparate. This situation is inequitable and would be made more equitable through a commuter tax which would increase the commuters’ tax burden. Similarly, the commuter situation violates the principle of vertical equity which holds that individuals with more ability to pay should pay more, meaning those with greater incomes
