NY should give restaurants and retailers a tax holiday

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Good news: After the horror of the past year, New York’s budget crisis isn’t as bad as it could be. Now, Team Biden is sending even more billions our way. Gov. Cuomo, Mayor de Blasio and lawmakers should use part of this money to support restaurants and retailers through the most direct way possible: a sales-tax holiday. 

A recent report by city Comptroller Scott Stringer found that Gotham likely will end this fiscal year in June with a surprise surplus, nearly $400 million. It isn’t because de Blasio has cut spending. Overtime has continued to soar, and Hizzoner never achieved the labor savings he promised. Spending is actually $500 million higher than the mayor said it would be. 

Rather, tax revenues are coming in better than expected. Personal-income and business taxes will be $900 million higher than the mayor estimated in January. 

When the pandemic set in last year, the city projected a double-digit decline in personal-income taxes, but these revenues are looking to fall by just 2.3 percent in the year that’s just ending. This one tax source, at $13.7 billion annually, made up about one-fifth of the city’s $64.4 billion in taxes, pre-COVID. 

It has held up remarkably well, considering that, as of December, 560,000 New Yorkers, or 14 percent of the pre-COVID workforce, were still unemployed. For the upcoming fiscal year, which starts in July, the city faces a $1.4 billion deficit, one that will be easily closed by the largesse Washington is showering on states and cities, including $5.6 billion to Gotham. 

Similar dynamics are playing out with the state budget, which is even more dependent on income taxes than is the city budget. 

Why the disconnect? Income taxes are already highly progressive. In 2018, the top 1 percent of New Yorkers — 38,714 households — paid 42.5 percent of city taxes. This group hardly makes up the city’s restaurant, entertainment and retail workers, who have suffered the brunt of lockdowns.

As of December, “only” 6 percent of finance workers had lost their jobs, which isn’t nothing. But half of leisure and hospitality employees, including restaurant workers, were still out of work. 

For all of the local governing class’ talk about massive tax hikes on the rich to redistribute some of this money, there is a pragmatic way to redistribute some of that money now, without driving (more of) the rich away: Cuomo and de Blasio should use some of the expected federal relief funds coming New York’s way for a sales tax holiday for restaurants and retailers, via state legislation (the state controls the city’s sales tax). 

Consider: In a normal year, restaurants in the five boroughs would do about $27 billion in ­annual business, according to a ­report by the state comptroller. The tax take of that is about $2.4 billion, roughly split between state and city. But this is nothing like a normal year: Much of that business is gone, anyway, no matter what the tax rate is. 

The city and state simply wouldn’t “lose” very much money, then, by declaring a summerlong restaurant sales-tax holiday on meals under, say, $200, starting in May, when it’s warm enough for people to eat outside again. 

Effectively giving people a near-10 percent discount on their meals is a good way to get them eating out again. 

And it won’t take away from ­future business. Eating a meal you wouldn’t have eaten otherwise in May doesn’t mean you will forego eating out in December, if the mood strikes you. 

In fact, a sales-tax break now may bring in more revenue to the state and city, in the long term, by keeping some restauranteurs afloat. Other localities are free to ask Albany to do the same for them, as well.

Plus, a tax holiday would get more restaurant workers back to work, meaning they would once again pay income tax. 

The state and city should also consider a smaller sales-tax break for struggling retailers, as well. 

Gotham and the Empire State still have long-term budget problems, sure. The city’s biggest long-term problem is that its property-tax revenues are still falling, creating deficits in future years. 

But property taxes are falling ­because the value of the property is falling — and that’s partly because of so many vacant restaurant and retail spots. A closed restaurant or store brings in no sales taxes — and less property and income taxes over time. 

Nicole Gelinas is a contributing editor of City Journal. 

Twitter: @NicoleGelinas



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