- Cafe Hayek - http://cafehayek.com -

New York City tax economics (by Russ Roberts)

Tweet [1]

Fabulous article by Nicole Gelinas in the New York Post [2] on the NYC Mayoral candidate’s proposal to increase tax rates on the rich to fund a longer school day for pre-K children. Read the whole thing but here are a couple of interesting facts:

De Blasio’s scheme is this: Hike income taxes by 13.8 percent on New Yorkers making above half a million dollars annually.

He’d use this bounty — $530 million a year — to pay for 38,177 pre-kindergarten students to go to school all day instead a half-day. He’d create 10,000 new pre-K slots, too.

The rest, $188 million, he’d spend on older kids’ after-school activities. After five years, de Blasio would let this tax surcharge lapse, and — he says — find another way to pay.

De Blasio’s plan has pushed him to frontrunner status in the Democratic primary.

But many voters don’t realize: We already spend $24.6 billion a year on education — 52.7 percent more, adjusted for inflation, than we did when Mayor Bloomberg took office nearly 12 years ago.

Wow. A 53% real increase. Those New York kids must be really smart now. And as Gelinas wisely points out. Obviously that increase wasn’t nearly enough. There appear to be about 1.1 million kids [3] in NYC’s public schools. That’s about $22,000 per pupil. I’m sure every penny is wisely spent. So clearly, if you want to fund a longer pre-K day, you have to raise taxes, right?

And this:

In 2009, the top 1 percent of taxpayers (the 34,598 households making above $493,439 annually) paid 43.2 percent of city income taxes (they made 33.9 percent of income), according to the city’s Independent Budget Office. Each of these families paid an average $75,477.

The top 1% made 34% of the income but paid 43% of the taxes. If you listen to EconTalk you know that I think that the salaries in the financial sector (and for economists outside the financial sector) have been distorted by implicit subsidies. That’s part of the reason a mere 1% make 34% of the income. But note that they do pay 43% of the taxes. You’ll often hear how the rich have used their political power to lower their tax burden. Yes, some of the rich have a disproportionate share of political power. But their power must be pretty limited if they still pay 43% of the income taxes collected in New York City.

Read the whole article. Lots of good microeconomics.