A Giveaway to Landlords

June 8, 2001. An op ed by Moshe Adler and James Parrott, published in the New York Daily News.

With commercial rents skyrocketing, Mayor Giuliani and the City Council have decided to step in. Hold on to your wallet. Ostensibly to help commercial tenants, the mayor and the Council have decided to transfer $25 million a year from the pockets of taxpayers to the pockets of landlords.

Here is how it will work.

The city taxes commercial rents when they exceed $150,000 a year. In the budget deal that they wrapped up Wednesday, the mayor and Council agreed that, in effect, this rent tax burden should be reduced to give commercial tenants a break.

The only problem with this argument is that it is landlords who pay this tax, not commercial tenants.

To a business, the breakdown between rent and tax is irrelevant. What the business is concerned about is its total cost for real estate, meaning rent and taxes combined.

Thus, if building owners push rents up as the commercial rent tax comes down, tenants won’t know the difference, since their real estate costs will stay the same.

Those who have fought for a reduction in the commercial rent tax will tell you that New York is the only city in the country that has this levy.

They argue that because it is unique to New York, it induces businesses to move to New Jersey, Connecticut and elsewhere.

This is simply not true.

The commercial rent tax is nothing but a property tax. The only way in which New York City is unique is that its property tax is divided into two parts, each with a separate name.

Rents on prime commercial property have increased 27% in the last year alone.

If it is high rents that spur development, landlords already have all the incentive they can possibly need to create space for  commercial tenants.

The loss to the city from the reduction of the commercial rent tax will be $25 million annually. This money could have helped put the public hospital system on a sound financial footing or funded some other vital public service that ordinary New Yorkers need.

The landlords don’t need or deserve this tax break, and New York City cannot afford it.

Adler and Parrott are economists for the Fiscal Policy Institute.