In the last five years, New York City's economy has boomed and private sector employment has hit record levels. What, if anything, did lower taxes have to do with these achievements? And what are the implications for future tax policy?
Using an econometric model, NYC-STAMP, we reach these conclusions:
- Reductions in the City's personal income, sales, business and property taxes have generated more than 80,000 new jobs since 1997, or about one of every four gained by the City during that period;
- More than 6,500 new jobs will be generated by tax cuts that were included in the City's fiscal 2002 budget but are still awaiting the state Legislature's approval;
- Nearly 15,000 more jobs could be added to New York's employment base by eliminating what's left of the personal income tax surcharge first adopted by the City a decade ago;
- Thanks to these additional jobs, New York City's job growth rate exceeded the national averageâ€”the first time that has happened during an economic expansion since 1950.
The NYC-STAMP model also can be used to predict the consequences of reversing tax cuts.
- Undoing the recently enacted cut in the income tax surcharge would reduce employment growth by over 6,300 jobs;
- Full restoration of the former 12.5 percent personal income tax surcharge would result in the destruction of nearly 25,000 jobs;
- Restoring both of the Dinkins-era surcharges would cost the City nearly 37,000 jobs.
The lesson for the City is clear: tax cuts create jobs, tax increases kill jobs.