Last week, Mayor Mike Bloomberg announced a grim update to New York City's $60 billion budget. To meet falling revenues he proposes spending cuts and property-tax hikes, and he may increase income taxes by 15%.The challenges New York City faces are more significant than those facing other large cities.
To understand just how dependent upon Wall Street New York City's budget has become, consider these facts. Two years ago, a third of all the wages and income in the city came from the finance, insurance and real-estate industries, up from just a quarter a decade earlier. The securities industry alone was responsible for a quarter of wages, up from 17% from a decade earlier.For the United States to recover quickly from its current economic problems, the federal government must make it less expensive to invest in the United States. The Democrats' Union Card Check proposal and their desire to raise taxes are moves in the wrong direction.
The city also depends on its top 1% of earners -- many of them tied to the financial industry -- for nearly half of its personal-income tax revenue, up from 41% from last decade. The financial sector provides more than a third of business taxes. Last year, Wall Street bonuses alone comprised 8% of the city's personal income. In 2000, the peak year for tech-bubble bonuses, they comprised 6.6%.
Wall Street's boom, moreover, papered over the precarious structure of New York City's budget. Two years ago, New York took in 41% more in tax revenues than it had in 2000, after inflation. But the city's long-term, big-ticket budget items -- pensions and health care for city workers, Medicaid and debt costs -- had increased by more than half.
The mayor calls these costs "uncontrollable" because cutting them requires long-term planning. They now comprise more than half of the budget funded by city tax revenues, and will continue to grow if left unchecked. The budget in general is 22% bigger, after adjusting for population and inflation, than it was at the height of the 1970s fiscal crisis. Most of that growth came in the past seven years.