New York City, arguably the epicenter of the world.
One famous song goes that if you can make it there, you can make it anywhere.
And it's true.
Those that make it make it really big.
It's the richest city in the world with a total wealth of two point seven trillion dollars.
One hundred and thirteen billionaires and twenty five thousand people with ultra high net worth.
The coronavirus pandemic has rocked the city.
At one point, the fatality rate was about 10 percent and over 30 percent for those hospitalized.
In April, nearly one out of every three New Yorkers was out of work, and total consumer
spending was down by over 40 percent.
The tourism industry, which supported almost four hundred thousand jobs and generated almost 70
billion dollars in twenty nineteen, came to a screeching halt.
Shootings and murders skyrocketed.
When we talk about economic recovery, rich people don't need a recovery.
They're actually richer right now than they were before.
The best case to make for New York is invest in the bottom.
The consequences are a potential budget shortfall of at least 30 billion dollars in the next few
years. While the area will be getting nearly twenty four billion dollars in federal aid soon.
State and local officials say that that's not enough.
Good morning, all.
Raising taxes on the wealthy is one part of Governor Cuomo proposal.
If you, raised income taxes, the top rate, which is...
It would make New York the area with the highest state and local income tax in the nation.
Most successful New Yorkers are doing great and asking them to pay more is very appropriate.
But I think there is a balance that one has to maintain.
If you need that iceberg to melt faster and faster.
And the next thing you know, a big chunk of the tax base is falling off and floated away.
In general, migration declines with income.
If the rich really just wanted to find a low tax place to live, they've had generations to figure
out how to make it work.
You then have to cut dramatically.
Another part of this proposal is to cut Medicaid and school spending.
Cutting public services is a very dangerous thing to do, both economically,
politically and also morally.
Those actually do drive people to leave the city.
Between January and December of twenty twenty, about ninety three thousand more people left the
city than moved in.
That's not that much considering New York City's total population is eight point three million, but
those that left brought thirty four billion dollars in personal income with them.
Is this the collapse of New York City or any other city?
No, it's not. There's so much the New York has to offer.
But is it a serious challenge that policymakers need to be grappling with right now?
Yes, it is. Watching the city go through this crisis has been really difficult.
I was born here and I spent half of my career here.
We spoke to experts to find out what some of the challenges are and the potential path to recovery.
Economists often refer to post recession recoveries with a letter.
L, u v or a W.
A V is the ideal, meaning the economy fell sharply, but then will also rise sharply.
The coronavirus pandemic has introduced something we haven't seen before.
The K. Meaning that a portion of the economy recovers like the V.
In this case, those who worked from home were able to save and benefit from a sharp rise in asset
values. Some corporations did very well, too.
For others, the pandemic has been quite the opposite.
In twenty twenty, six hundred and sixty two thousand jobs were lost and bankruptcies surged by
40 percent. Leading industries like hospitality, entertainment, food service or travel
were completely shut down.
Unemployment in the city is at thirteen point one percent and even higher for those below the poverty
line. What New York City and New York state needs to do is actually spend money right now and they
could spend money like building affordable housing, rebuilding the roads, rebuilding the
bridges. And all those things are going to put people back to work.
Cutting corners is guaranteed to backfire.
First, I'm championing a billion dollars in cash relief for the extremely poor.
Then I've proposed trying to get high speed Internet to the twenty nine percent of New York
City residents who don't have it.
And I proposed a people's bank to help reduce the proportion of New Yorkers that are unbanked and
underbanked. On the fiscal side, the city initially projected a budget shortfall of eight
point three three billion dollars for fiscal year twenty twenty one.
But a mid-year review in February of twenty twenty one showed that a better than projected revenue
from income and from corporate taxes is looking to generate a surplus of nearly three point four
billion dollars.
In the medium term, the outlook is not as good.
The city is projecting a fifteen point six billion dollar deficit for fiscal year twenty twenty two
for twenty four, mainly due to a decline in property tax collections.
For the state, Governor Cuomo is estimating a 15 billion dollar deficit for just fiscal year twenty
twenty two. Policymakers should not overreact to the revenue shortfall they have right now.
It's not very significant for all of the concerns about a revenue decline in New York.
Tax collections were down about one percent last year.
That's well within the state's ability to cover.
Now the state's expenses keep going up.
So flat line revenue is still a challenge for the state because those expenses keep rising.
But nonetheless, this is manageable.
Regardless, city and state officials are feeling the pressure.
There are a number of proposals for the road ahead.
President Biden's American rescue plan, signed on March 12th, includes nearly twenty four billion
dollars to the various levels of the New York government.
Of that six billion dollars will go to the city.
When you look at the wealthiest people in the city and the wealthiest people in the state, their
wealth increased eighty eight billion dollars.
Right. So the deficit is not kind of arbitrary.
The deficit is a failure of city and state policy to tax the wealthy that are gaining the
most from the economy and reinvest it into the rest of the economy so that they can see some gains
as well. We don't really have data.
We do have a lot of anecdotal evidence right now that the wealthy are leaving high tax cities and
states during covid.
If they leave, there's a huge fiscal crisis.
How do you pay for all of these services?
And that affects everyone.
The people who stay, either have a higher tax burden or will receive fewer government services.
So there's a real question that policymakers need to address right now.
How do you keep these people here?
How do you make sure that post pandemic, they want to come back?
We're moving to a virtual world in which people have choices.
The city has got to figure out that these folks are not the
enemy. In twenty eighteen, the top one percent made up forty two point five percent of total
income tax collected by the city, according to the Independent Budget Office.
That was five billion dollars in revenue for the city.
In January Cuomo proposed a top tax rate increase of up to two percentage points.
New York is probably the best place in the entire planet potentially to get really, really
rich. And taxes is not even the priority.
Studies have shown that we could probably increase our taxes 60 to 70 percent.
And at the end of the day, the millionaire flight thatthat would happen would be overshadowed by all
of the money. The state would still show the city would still show a net positive in
revenues. In addition to New York State's top tax rate of eight point eight two percent, the city
levies its own income tax, which can be as much as three point eight seven six percent.
According to the Tax Foundation's calculations, New York is the third most expensive state to live
and do business in.
CNBC does a similar ranking, but it looks at the state's attractiveness for business.
On that list, the state ranks twenty seventh.
New York City has a very high municipal income tax, and if people are not physically working there, New
York City doesn't get that revenue.
So as those midtown Manhattan offices empty out, so do the city's coffers.
We can ask the fundamental questions about what sort of society we want, what sort of tax treatment
we want. We also have to just grapple with economic realities, which is, there is a tipping
point at which people will leave.
Income taxes are just one part of the story.
New York City depends even more heavily on property taxes.
According to a report by the Real Estate Board of New York, investment and residential property sales
were down 46 percent in 2020.
That meant a one point six dollars billion loss in revenue for the city and state combined.
But there's some indication of recovery.
January twenty twenty one was a huge month, with sales worth six billion dollars, nearly 40 percent
up from January of twenty twenty
As taxes slumped because values are down, the city, instead of making tough decisions about
its own budget, will simply seek to raise rates or to target higher taxes on the remaining value,
on the remaining landlords, and on the remaining businesses, and high earning individuals in the
city to make up for the loss and create kind of a vicious cycle in which they push away
people and businesses and lose more.
The fear of high income earners leaving cities or states because of high taxes is common among
lawmakers and experts alike.
It's very intuitive of what we know about millionaires in general, is
they're well known to avoid taxes and have you know, there's sort of this income defense industry
of accountants and lawyers and wealth managers who are helping them reduce their tax burden.
And so this fits in with the idea of millionaire tax fight.
Young says that while there are anecdotes, the data doesn't support it.
He's been analyzing tax returns of the wealthy for over a decade.
Two point four percent a millionaires a year change their state of residency.
One in eight of those moves is chasing lower taxes.
So we've got a small fraction of a small fraction.
This amounts to like zero point three percent of the millionaire population that's moving for
tax purposes.
A straight tax increase on the rich is not the only option.
Others, like the city's independent budget office, have proposed a mixture that would both cut costs
and raise revenue.
The reason you don't see like something approaching an exodus in the wake of this is that the value
proposition, as it's often put of New York, hasn't been completely destroyed necessarily.
I think a lot of really high income, high earning people would, in fact, probably prefer to
live in New York, prefer the lifestyle of New York if they could be assured that it was coming back.
This is not the first time that New York City experienced a major downturn.
In fact, the city has a long history of them.
From the 1918 flu pandemic and the Great Depression to 9/11 and the '08 Recession.
Each time critics have proclaimed the end of the city and each time they've been wrong.
The mayor who guided New York City through its greatest crisis is Fiorello LaGuardia.
He was the mayor of this city during the Great Depression and World War Two.
He worked in a time when the federal government was willing and ready to invest lots of money in
its cities. But in the decades after World War Two, over time, the idea of the
federal government supporting New York City was no longer in fashion.
In the 1960s, the working poor thrived in New York City.
There was a free public hospital system, free university tuition at City University of New York
schools, a large public housing system, cheap and reasonable subway service, and generous
salaries for public service workers.
But the services, well they weren't cheap.
And by 1975, the city was plagued by a fiscal crisis.
It was a time of rising conservatism, and the city became a symbol of what was wrong with big
government. By giving a federal guarantee, we would be reducing rather than
increasing the prospects that the city's budget will ever be balanced.
President Ford denied federal aid and banks forced city officials into an austerity program that cut
social services.
Now, the city avoided a bankruptcy, but historian Phillips-Fein argues that the austerity measures
transformed the city's politics, its character, and its demographics forever.
In certain ways, the development of the city became much more geared toward the idea that you
have to craft city policy with an eye towards retaining and attracting
wealthy residents, businesses and doing whatever you can to make sure that they stay here.
I would say in the 90s, if you were going to be a top
flight employee of a first tier firm, you had to work in New York City.
It's what I would call the network effect.
And I would say today that proposition has changed dramatically.
From 1977 to 1997, the top tax rate on earned income more than halved.
The state's gross domestic product exploded and the wealthy got substantially wealthier while the
poor became poorer.
That's a development that played out over the 80s, 90s and the past 20 years
of the 2000s.
Many of the crises that we've seen in the city have kind of affected
people very differently, depending on where they are in the economic structure.
In the years following the Great Recession, New York City experienced its strongest expansion in
decades. This time, though, the economy is in shambles, the state and city's fiscal situation
are looking better than previous downturns and not as bad as initially predicted.
And the fact that Americans in general have more savings than ever before bodes well for recovery.
If all of these people felt some assurance that that the city was going to
rapidly get moving again and that the city and state were not going to clobber
really prosperous, profitable businesses with even higher taxes, I think it would be the
outlook would be more positive and optimistic.
But right now, I think it's just we're in an atmosphere of great uncertainty.
Public services need to be protected and expanded to deal with crises
such as the pandemic.
Those are actually, I think, much more important in driving people out of New York or could be more
important than tax increases.
Manageable by historical standards, what sets this pandemic apart is the unprecedented
uncertainty. Short term, that means the speed in which the vaccine will be widely available and the
arrival of federal aid.
Long term, it will depend on whether the city is able to retain its agglomeration economics.
That could be at risk if work from home policies are sustained.
We've heard this story for thousands of years and the cities always endure.
We've had plagues before and the cities came back.
New York has proven resilient.
It will continue to, but that doesn't mean that everything will be normal.
We're going to need all hands on deck because the gravity of this crisis is very, very real and there
is no guarantee that New York City just comes back the way we want it to.
They say New York is dead.
Still, I can't bring myself to leave it.
I've been trying to stop the bleeding along.
I wish we never met.