New York State Leads Nation in Income Inequality

June 16, 2016. In Income inequality in the US by state, metropolitan area, and county, a new report published by the Economic Policy Institute (EPI) for the Economic Analysis and Research Network (EARN), Mark Price, an economist at the Keystone Research Center in Harrisburg, PA and Estelle Sommeiller, a socio-economist at the Institute for Research in Economic and Social Sciences in Greater Paris, France detail the incomes of the top 1 percent and the bottom 99 percent by state, metropolitan area, and county.

“Great income inequality is not a new phenomenon, and it’s not confined to large urban areas or only some parts of the nation,” said Ron Deutsch, Executive Director of the Fiscal Policy Institute (FPI). “It’s a persistent problem throughout the country—in big cities and small towns, in all 50 states. In the face of this national problem, we need policy solutions to jumpstart wage growth for the vast majority and sensible tax and budget policies in New York.”

FPI is a member of the Economic Analysis and Research Network and co-released the new report today in New York.

The new report provides extensive data on income inequality, including the average incomes of the top 1 percent, the income required to be in the top 1 percent, and the gap between the top 1 percent and the bottom 99 percent in every county and state as well as in 916 metropolitan areas. The authors found that, between 2009 and 2013, the top 1 percent captured 85 percent of total income growth in the United States, while the top 1 percent garnered 31 percent of all the income in New York State in 2013.

Regarding New York, the report’s key findings include:

  • The top 1 percent earned 45 times more than the bottom 99 percent in New York, the greatest disparity of any state. Connecticut ranked second with a top-to-bottom ratio of nearly 43. Wyoming was third, followed by Nevada and Florida. (Table 1)
  • The average annual income of the top 1 percent was $2 million (Table 1), and New York’s richest 1/100 of top 1% (“the 1% of the 1%”) had average incomes of $61.6 million, second to Connecticut’s $69.5 million. (Table 4)
  • Within New York State, only two counties—New York (Manhattan) and Westchester—have greater top-to-bottom income ratios than the state overall. In Manhattan, the average income of the top 1% ($8.1 million) was 116 times that of the 99% ($70,500), while in Westchester County, the average income of the top 1% ($4.3 million) was 54 times that of the 99% ($80,300).
  • High levels of income polarization are not limited to downstate New York. The third most income-polarized county was Saratoga, north of Albany, where the $1.8 million average income for the top 1% was 35 times that of the $51,500 average income for the 99%.
  • A three decade-long era of shared prosperity came to an end in 1979 when the 1%’s income share started to rise dramatically in New York and in every state in the United States. Since 1979, the average incomes of the top 1% have grown by 272% in inflation-adjusted terms in New York, while the average incomes of the 99% rose a meager 5.4%.

Given New York’s extreme income polarization, FPI’s deputy director James Parrott emphasized that “The State’s top economic priority in 2017 has to be to have our leaders in Albany act to permanently replace the current “millionaires’ tax” with FPI’s 1% Plan for New York Tax Fairness that would add four new, high-end tax brackets.” The millionaires’ tax expires at the end of 2017 and if it is not extended, the wealthiest 1% of state taxpayers will get a $3.7 billion windfall at the expense of New York’s faltering budget. Non-resident commuters working in New York now pay 17% of that amount.

FPI has long noted the overall regressivity of New York’s state and local tax system. The Assembly recently put forward a plan to increase the top income tax rates on New Yorkers making over $1 million per year that was similar to the plan advanced by the Fiscal Policy Institute. “We live in a state where so few have so much and so many have so little,” said Ron Deutsch. “The good news is we can do something about it. To ensure we don’t slip further down the income inequality slope we must not let the “millionaires’ tax” expire, in fact, given the report’s findings, we really need to expand income tax brackets for the top one percent to begin to address this glaring inequality.”

PDF of Full Report: Income inequality in the U.S. by state, metropolitan area, and county

PDF of Ratio of top 1% income to bottom 99% income for all New York counties

PDF of Press Release

Note: FPI estimates that the 1% share of all income in New York City was 37.1% in 2013, and 39.0% in 2014.

Analysis of Refugee Groups Provides Evidence of High Levels of Integration Across Indicators

June 16, 2016. The Fiscal Policy Institute and the Center for American Progress released a report that analyzes how four key refugee groups—Bosnians, Burmese, Hmong, and Somalis—in the United States are doing on key indicators of integration, such as wages, labor market participation, business ownership, English language ability, and citizenship. As the United States and other countries wrestle with how to handle the sharp rise in the number of people around the globe displaced by conflict and persecution, the long-term experiences of the four groups studied in this report should provide grounds for encouragement.

The methodology developed for this report allows for a rare analysis of how refugee groups integrate in the long run. The report finds that over time, refugees integrate well into their new communities. For example, after being in the United States for 10 years, refugees are in many regards similar to their U.S.-born neighbors, with similar rates of labor force participation and business ownership; the large majority have learned to speak English after being in the country for 10 years and have become naturalized U.S. citizens after being in the country for 20 years.

“Refugees have experienced some of the most horrific of circumstances imaginable. Yet as they establish themselves in America, they get jobs, start businesses, buy homes, learn English, and become citizens,” said David Dyssegaard Kallick, director of the Immigration Research Initiative at the Fiscal Policy Institute and principal author of the report. “Economic growth is not the primary reason refugees are resettled, but it is a positive byproduct of giving people with nowhere to turn a new place to call home. Doing the right thing is not only good for refugees—it’s also good for American communities.”

The report’s major findings, based on an analysis of 2014 American Community Survey 5-year data looking at Somali, Burmese, Hmong, and Bosnian refugees, include:

  • Refugee groups are gaining a foothold in the labor market, with labor force participation rates of men in the Somali, Burmese, Hmong, and Bosnian refugee communities often exceeding those of U.S.-born men and with rates for women catching up after 10 years to about as high as or sometimes higher than those of U.S.-born women.
  • Refugees see substantial wage gains as they gradually improve their footing in the American economy, with some starting their own businesses and many shifting to occupations better suited to their abilities as they find ways to get certification for their existing skills and learn new ones.
  • Refugees integrate into American society over time, with a large majority of refugees having learned English and becoming homeowners by the time they have been in the United States for 10 years and with three-quarters or more having become naturalized U.S. citizens after 20 years.
  • Somali, Burmese, Hmong, and Bosnian refugees are part of the economic revitalization of metropolitan areas around the country: From Minneapolis and St. Paul to St. Louis and from Fargo, North Dakota, to Columbus, Ohio, political leaders have welcomed the contributions of refugees to the local economies and to the expanded vibrancy of their cities.

As the report mentions, 1 in 12 immigrants in the United States came as a refugee or was granted asylum. And of around 3 million refugees, about 500,000—or 1 in 5—are Somali, Burmese, Hmong, or Bosnian refugees.

“The United States has a great track record of welcoming thousands of refugees each year and helping them find a safe place to call home. As this report confirms, refugees, who come from diverse backgrounds and humble beginnings, end up doing very well in the United States,” said Silva Mathema, Senior Policy Analyst for the Immigration team at the Center for American Progress and co-author of the report. “Now is not the time for the United States to pull back on welcoming refugees. Rather, given the global refugee crises currently confronting us, now is the time to welcome and invest in programs and policies that help to integrate them.”

PDF of Full Report: Refugee Integration in the United States.”

PDF of Press Release

Testimony: Proposed $15 Baltimore Minimum Wage

June 15, 2016.  In testimony before the Baltimore City Council, James Parrott, says it would be sound public policy for the City of Baltimore to phase in a $15 an hour minimum wage. Considerable compelling and economically sound research supports the conclusion that businesses can accommodate such an increase. A higher wage floor would generate significant cost savings due to reduced turnover and there is room for modest price increases to ease the adjustment without jeopardizing overall employment levels or profitability. Businesses of all sizes will be encouraged to operate more efficiently. Moreover, a $15 wage floor would boost consumer spending for nearly 100,000 Baltimore workers. It will aid struggling families, benefit many of the city’s children, reduce poverty, and will have positive overall economic consequences across the city.

PDF of Complete Testimony

Heights of Privilege

June 2, 2016. The following article by James Parrott appeared in the Spring 2016 issue of The American Prospect magazine.

If you want to learn about the latest manifestations of inequality in urban America, read the real-estate sections of newspapers and magazines and check out the photo spreads on luxury condos in new residential skyscrapers. The palatial size, lavish finishes, and breathtaking price tags of these properties are advertisements of our new Gilded Age. In the area immediately south of Central Park in Manhattan now known as Billionaire’s Row, condos at a half-dozen towers for the super-rich list for an average of $14.5 million. Buyers from abroad are common. The penthouse at 432 Park Avenue—the tallest residential building in the Western Hemisphere—went for $95 million to a Saudi. At One57, a residential skyscraper on 57th Street, the luxury penthouse was sold for $100.4 million, the buyer reported to be the prime minister of Qatar. About one-third of Manhattan condo sales since the 2008–2009 recession have been to foreign buyers or to a limited liability corporation (LLC) often used to shield the identity of the ultimate owner.

Such properties also epitomize the privileges of the global one percent in a less publicized way: They are dramatically undertaxed. According to New York City’s Independent Budget Office, property taxes on the condos at One57 are discounted by 95 percent. Although that’s extreme, it’s consistent with a general pattern of underassessment of high-end real estate that ends up leaving low- and middle-income families with a disproportionate tax burden.

The public policy decisions that have promoted and subsidized luxury development are getting new attention, thanks to concerns about the surge of foreign buyers in the top tier of the market in New York, Miami, Los Angeles, and other cities. As New York’s mayor in 2013, Michael Bloomberg argued that the influx of foreign wealth was a good thing. “If we could get every billionaire around the world to move here, it would be a godsend. They’re the ones that spend a lot of money in the stores and restaurants and create a big chunk of our economy, and we take tax revenues from those people to help people throughout the rest of the spectrum.”

Unfortunately, however, not only do the super-rich pay little in property tax relative to market value; since most of the foreign owners don’t live or work in New York even half the time, they also don’t pay city or state income tax. In fact, some of those buyers aren’t eager to pay taxes in their home countries either. A New York Times series in early 2015 tracked down some of the LLC buyers and their beneficial owners, uncovering oligarchs and other shady characters who have amassed great fortunes all across the globe, often under questionable circumstances. To no one’s surprise, such buyers have had no difficulty tapping an army of local enablers in the real-estate business eager to facilitate such transactions.

Concerned about the potential for money laundering, the Treasury Department announced in early January that it would start requiring title insurance companies to reveal the beneficial owner in all-cash purchases in Manhattan and Miami that “may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures.” A Treasury official stated, “We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money.”

Other concerns have also arisen about the wave of purchases of urban properties by often-anonymous nonresident buyers—domestic as well as foreign—who may be mainly interested in the properties as investments. Full-time residents of chic neighborhoods now complain about a “ghost town” feel in their area because so many apartments are unoccupied most of the time. In some census tracts in Manhattan, government data confirm that 60 percent or more of apartments are vacant for ten or more months each year. Ironically, many of the complaints about nonresident owners and the low taxes they pay come from wealthy residents whose own condos are also underassessed.

The controversy over luxury real-estate development has begun to produce a political response. New York State has started phasing out one of the subsidies benefiting luxury real estate owned by nonresidents. But more substantial reforms are necessary in New York and other cities, and those changes should reflect an understanding of how property taxes came to be skewed in favor of the people who need tax relief the least.

Since property is usually taxed in relation to its value, the wealthy ought, in principle, to pay more. In practice, however, the ratio of property taxes to income invariably declines as you go up the scale.

Property taxes are typically the largest local funding source for public schools and other services—amounting to $1.8 trillion nationwide, nearly one-seventh of total taxes collected at all government levels. Since property is usually taxed in relation to its value, the wealthy ought, in principle, to pay more. In practice, however, the ratio of property taxes to income invariably declines as you go up the scale. That’s the definition of a regressive tax. The Institute on Taxation and Economic Policy—a leading state and local tax justice think tank—reports that, as a percentage of their income, middle-income families pay property taxes four times higher than the wealthiest 1 percent, and the poorest fifth pay property taxes five times higher.

With its reputation as a bastion of progressive politics, New York City might be expected to have a progressive tax system, taking all taxes into account. Nonetheless, the overall tax burden is regressive, largely due to the property tax that hits homeowners in poor neighborhoods and renters throughout the city with higher effective tax rates than others pay. And while New York’s Mayor Bill de Blasio has worked overtime to build more affordable housing, his main approach is to give property tax breaks to luxury housing developers on condition that they include a portion of affordable housing in their construction projects. The leaders of both the city and state haven’t put as much effort into making the property tax more equitable.

Analysts across the political spectrum in New York agree that systematic inequities in the city’s property taxes are traceable to legislation passed by the state in 1981 to protect small homeowners. As a result of peculiar provisions of the 1981 law, effective property tax rates (taxes paid as a percent of true market value) are now highly skewed. Most owners of one-, two-, and three-family homes pay the lowest effective rates, followed closely by owners of co-op and condo apartments. The owners of rental properties pay much higher effective rates, which they pass on to their tenants. In fact, rental properties now carry effective tax rates about five times the effective rates for condos and one-, two-, and three-family homes. These property tax inequities have a marked class and race dimension. The median income of renters is only half that of home and apartment owners; racial minorities account for slightly more than half of home and apartment owners but for three-quarters of renters.

Two major problems with the 1981 law are at the root of growing inequities. First, the law imposed assessment caps to keep taxes from rising too fast for one-, two-, and three-family homes, but it didn’t apply those caps to multifamily structures with ten or more units, whether co-op, condo, or rental buildings. As a result, the effective tax rates on one-, two-, and three-family homes declined relative to those on large apartment buildings. Second, the 1981 law required that co-op and condo buildings be valued as if they were income-producing properties—that is, rental buildings. New York City has long had “rent stabilization” protections that limit rent increases, a benefit to renters. But the valuation for tax purposes of co-ops and condos as if they were rental units resulted in assessments of those properties far below their market value. In 1997, the City Council also enacted a partial tax abatement for co-ops and condos that doesn’t apply to rental properties. Since rental buildings were subject to neither the assessment caps nor a valuation method that discounted their market value, the effective tax rate on rentals kept climbing relative to all forms of owner-occupied units.

Another source of property tax inequities is variation in effective tax rates by neighborhood. The assessment caps have had a bigger impact on assessments in higher-income and gentrifying neighborhoods than in predominantly working-class neighborhoods, where prices haven’t grown as fast. For example, the Independent Budget Office estimates that condos in swanky parts of Manhattan such as the neighborhood south of Central Park pay effective tax rates one-third those of condos in many parts of the Bronx.

The inequities in New York City’s property taxes have been widely recognized ever since the passage of the 1981 state law, but reform has remained elusive. David Dinkins, mayor from 1990 to 1993, and Rudy Giuliani, mayor from 1994 to 2001, had some interest in reform but were never able to follow through. During his three terms, which ended in 2013, Bloomberg seems not to have lost any sleep over tax inequities or income disparities.

Nevertheless, the patent absurdity of subsidizing wealthy nonresident owners has finally opened up possibilities for change. In 2013, the state legislature passed a measure to phase out the 1997 co-op/condo partial tax abatement for nonresident owners. Proposals for a “pied-à-terre” tax have also received some attention. One proposal calls for a graduated 4 percent tax on the true market value in excess of $5 million on co-ops and condos owned by nonresidents. Although it would only apply to the top 2 percent or so of nonresident-owned New York City apartments, the tax would generate $300 million to $400 million a year—enough to cover most of the cost of universal pre-kindergarten in the city.

The mere mention of the “pied-à-terre” tax proposal was enough to generate howls of protest from the real-estate community.

Every effort to tax high-end real estate draws fierce opposition. The mere mention of the “pied-à-terre” tax proposal was enough to generate howls of protest from the real-estate community. Tackling the larger problem of property tax fairness inevitably means confronting even wider resistance. For years, property tax reform has been considered untouchable in New York City because middle-class owners of one-, two-, and three-family homes have some of the lowest effective rates and likely would end up paying more. Still, in a city where two-thirds of households rent, there could be a base of support for change.

In New York, three key ingredients will be needed for true property reform. The first is a blueprint to correct the problems I’ve described in current state law. Second, to ensure that no home-owning family pays an inordinate amount in property taxes, reform should include a “circuit breaker”—a provision that limits taxes in relation to family income, administered through the local income tax. Third, tenants in units under rent stabilization need guarantees that savings will be passed on to them if property taxes decline on rental properties. Since New York City’s property tax system is established in state law, the city government cannot change that system by itself. The city and state need to act together—a difficult process even when both the mayor and the governor are Democrats.

The goal should be to reduce the disparities in effective property tax rates among residential properties. Changes should be phased in gradually—a transition period of 10 to 15 years might be necessary. Lessening the burden on rental properties can only help the city’s considerable challenge in providing affordable housing. At the same time, reforms ought to curtail unnecessary property tax breaks that have favored the biggest developers and corporate real-estate owners.

Looking across the country, two approaches top the progressive agenda for property tax reform. States and localities should introduce or expand circuit breakers (31 states and the District of Columbia already have them) or institute a homestead exemption that reduces a homeowner’s property taxes by exempting a portion of a home’s value from tax. Another commonsense step is to increase state aid to localities in order to lessen the reliance on regressive property taxes. Both the circuit breaker and the increased local aid approaches shift the tax system toward broader-based state taxes, especially the income tax. Forty-three states have an income tax, and rates are graduated in 33 of those.

Graduated real-estate transaction taxes with rates that rise along with property values also make a lot of sense. To help fund an ambitious affordable housing agenda, New York Mayor de Blasio last year proposed a supplementary “mansion tax” of 1 percent on the first $5 million of a transaction and 1.5 percent on the value over $5 million. (This would be in addition to an existing top state and local transaction tax rate of 2.825 percent.)

Pied-à-terre taxes on nonresident owners also make a lot of sense in light of the increase in the ownership of second and third homes and the acquisition of properties primarily as investments. Occasional residence by itself doesn’t contribute much to the local economy or to a sense of community. Nonresidents who don’t contribute much in other ways ought to help fund the services and infrastructure that underpin the value of the assets they acquire.

An idea dating back to the 19th-century reformer Henry George is a land value tax. This is a way to both discourage speculation and to capture some of the value that is socially generated and not the narrow result of the property owner’s investment. The progressive element here is that government reaps a dividend associated with collective contributions that make a community a profitable site for market activities. Without a land value tax or similar mechanism, re-zonings for high-density commercial or residential uses simply put billions of dollars into the pockets of big developers in cities while transportation systems and other public needs are starved for resources.

As hard as property tax reform is, it is too big a source of inequity—and of frustration with government—for progressives to ignore. Less-regressive property taxes would help make real progress in the effort to reduce the racial and class inequalities in urban America.

For the published version of this article, visit The American Prospect.