Fiscal Policy Notes - The FPI Blog

FPI Commends Governor Cuomo for Advancing Middle Class Circuit Breaker—Targeted Tax Relief Tied to Income Is the Most Effective Mechanism

January 14, 2015. Governor Cuomo just announced a $1.66 billion property tax credit program (commonly referred to as a “Circuit Breaker”) to help ease the burden on working class families who are paying too much of their income in property taxes.

The Fiscal Policy Institute (FPI), working with our partners in the Omnibus Property Tax Consortium, has been calling for a targeted circuit breaker for years.  “We are pleased that the Governor announced a circuit breaker proposal that targets relief to working and middle class New Yorkers. This is a step in the right direction. We urge the Governor to make sure we pay for this tax relief by eliminating wasteful corporate tax credits that only line the pockets of the wealthiest at the expense of everyone else,” said Ron Deutsch, Executive Director of the Fiscal Policy Institute.

Deutsch added, “This targeted circuit breaker approach to providing property tax relief is far superior to the rigid property tax cap. We strongly urge that the “property tax cap-compliant” provision be dropped.”

“It is essential that the new round of property tax relief not come at the expense of restoring school aid, increasing revenue sharing to hard-pressed local governments, or restoring critical human services funding,” said James Parrott, FPI’s Deputy Director and Chief Economist.

State school aid falls $4-5 billion short of where it should be based on the 2007 school aid commitment to fund a “sound, basic education.” Revenue sharing has dropped by 75% since 1980, and the state spends far less on human services for the poor and disadvantaged in many areas than it did four years ago despite the fact that family hardships have mushroomed in the wake of the Great Recession.

To avoid crowding out critical funding needs in the state budget, FPI is urging that last year’s ill-conceived property tax freeze credit be scrapped and those resources used to help pay for a sensible circuit breaker.

For the longer term, New York State needs to restructure the state-local funding relationship. Currently, the state funds the third smallest share of combined state and local spending compared to other states, partly because New York requires localities to pay a significant portion of Medicaid costs and partly because State school aid falls short of what is needed. The State should scrap the austerity-inducing two percent spending cap, and for the State to more adequately invest in New York’s human capital and infrastructure needs, it will be important for the State to revise and make permanent the so-called “millionaire’s tax” that is now set to expire at the end of 2017.

Here’s why low- and middle-income New Yorkers need real property tax relief:

In 2011, an estimated one-third of all households in New York State with incomes of $100,000 or less paid 10% or more of their income in property taxes. About half of households with incomes of $50,000 or less had a property tax burden of 10% or more of their income.

 

How “circuit breaker” credits work and why they make sense

A property tax Circuit Breaker is a targeted form of property tax relief.  The name “Circuit Breaker” is used to describe this type of tax credit since it is designed to prevent households from being overburdened by property taxes just as electrical circuit breakers interrupt the flow of electrical current when a circuit becomes overloaded.

A property tax Circuit Breaker has several key elements:

  1. Sets an “affordability threshold” as a percentage (such as 6%) of household income.
  2. Provides for the calculation of a household’s property tax “overload” as the portion of the property taxes on the household’s primary residence in excess of that “threshold” percentage of the household’s income.
  3. Sets a “benefit” percentage (such as 50%).  A household’s Circuit Breaker credit is calculated by multiplying the household’s “overload” by the benefit percentage.

Residential property taxes are often high relative to income for low- and middle-income households. A study by the Institute on Taxation and Economic Policy finds that for this year, low-income families paid an average of 5.6% of their income in property taxes and middle-income families paid 3.6%, while the richest taxpayers paid only 0.7%.

PDF of Press Release

Immigrants Are More Likely to Be Business Owners …but They’re Not “Super-Entrepreneurs”

January 14, 2015. Immigrants are entrepreneurial—that is by now well established. But how much more is not as widely understood.

As I was working on a report about immigrant business ownership, Bringing Vitality to Main Street, released today by the Americas Society/Council of the Americas with the Fiscal Policy Institute, I dug into what the research shows.

What I found is that there is broad consensus that immigrants are a little more likely to own businesses than their U.S.-born counterparts, but not a lot more likely. Specifically, immigrants are about 10-15 percent more likely to own businesses than their U.S.-born counterparts.

Our study finds that in 2013, immigrants made up 16.3 percent of the labor force in the United States, and 18.2 percent of business owners. That 1.9 percentage point difference that means immigrants are 12 percent more likely to be business owners than their U.S.-born counterparts.

Robert W. Fairlie, a pioneer in this field, uses a different methodology but comes to the same conclusion. In a 2012 report commissioned by the Small Business Administration, Fairlie calculates the numbers a little differently, and finds that 10.5 percent of the immigrant labor force owns a business, compared with 9.3 percent of the U.S.-born labor force. That 2.2 percentage point gap represents a difference of 13 percent.

But, maybe you’ve heard immigrants are much more entrepreneurial than other people—maybe even twice as likely to be entrepreneurs as the U.S.-born labor force?

The confusion may come from what seems like a subtle nuance: the difference between “business starts” and “business ownership.”

Fairlie’s work has stressed the role of immigrants in starting businesses. Churn in the economy, he reasonably argues, is important to consider. And, his methodology shows that immigrants are substantially more likely to start a business, even if they may also be more likely to close that business. In a 2008 study, also commissioned by the Small Business Administration, Fairlie found that immigrants are “nearly 30 percent more likely to start a business than nonimmigrants.” In a more recent data, commissioned by the Partnership for a New American Economy, Fairlie uses post-recession data to find that “immigrants are now more than twice as likely to start a business as their U.S.-born counterparts.”

If immigrants are a lot more likely to start a business but just a little more likely to be a business owner, that must mean more immigrant-owned businesses close as well. Fairlie acknowledges this, though others reading his work have sometimes missed this point.

The idea that there is more churn in immigrant-owned businesses is intriguing, and it certainly seems plausible. Immigrants may have a harder time getting bank loans, or navigating the necessary licensing processes, for example. And, not all business closings are a bad thing. An immigrant who hangs up a shingle as an accountant but then gets offered a job by an established accounting firm, for example, might happily make the move.

But, while my curiosity is piqued by the finding, I’m not completely convinced yet. Here’s why: Fairlie’s work uses self-employment as a proxy for business ownership. Everyone who is self-employed is counted as a business owner, and everyone who moves from being not self-employed in one month to being self-employed in the next month is counted as starting a business.

That strikes me as problematic. Day laborers and most domestic workers, for example, are self-employed. They don’t have a single regular employer…but that doesn’t mean they should be considered business owners.

Many people who do have a regular employer are also may be “misclassified workers,” that is, their employers pay them as independent contractors to avoid responsibility for taxes or benefits. This is illegal, but a common enough practice that there are Misclassification Task Forces in New York, Tennessee, Iowa, and New Hampshire, to name a few.

Finally, we’ve just been through a very steep recession, when millions lost their jobs. Some of the newly self-employed may be people who got creative and started a new business, a real and important source of future growth. But, how many of the newly self-employed are really people who are piecing together what work they can get while they hope for something more permanent?

There is a readily available alternative to using self-employment as a proxy for business ownership. The Census Bureau—in the decennial Census, the American Community Survey, and the Current Population Survey—asks some further questions of people who are self-employed. Do you own your own incorporated business? Is running that business your full-time job?

Several factors make it seem preferable to count only people with incorporated businesses as business owners. It is telling, for instance, that people who are self-employed and have an incorporated business typically have a higher income than workers overall, while people who are self-employed but do not have an incorporated business typically have lower wages. And, while immigrants are somewhat less likely than U.S.-born workers to have a construction business that is incorporated, they are considerably more likely to be in the construction industry and self-employed but not incorporated. This fits with the notion that unincorporated self-employed in construction may be day laborers or misclassified workers than business owners. It also fits with the findings of Giovanni Peri and Chad Sparber that when immigrants first enter the labor force they move primarily into jobs requiring manual skills while U.S.-born workers move to positions requiring communication skills.

At the Fiscal Policy Institute, and in our joint research with the Americas Society/Council of the Americas, we have defined business ownership as people whose full-time job is to run an incorporated business, and we think it continues to lead to very credible findings.

What we discover in our new report is that immigrants are genuinely playing an outsized role in the area of Main Street businesses—the grocery stores, restaurants, retail shops, and beauty salons that help give a neighborhood its character and play an important role in urban revitalization. Measuring all Main Street businesses (retail, accommodations and food services, and a handful of “other services” such as nail salons and dry cleaners), we find that immigrants make up 28 percent of all Main Street business owners in the United States. That’s a stunningly high share.

To make that finding meaningful, it’s important to understand that in general immigrants are a little, not a lot, more likely to be business owners.

What about the question of churn? It seems to me that the question deserves further exploration. Maybe the same type of analysis Fairlie has done could be done using data about people who have an incorporated business and whose main job is to run that business? On the other hand, there are some advantages to including people who are self-employed but do not have an incorporated business in the picture when looking at business starts in particular. After all, many businesses start informally, and make a gradual transition to incorporation. Perhaps future analysis might look for ways to filter out people who are working on their own and not in any real sense starting a business?

Meantime, it is much more widely agreed upon than is generally understood that immigrants are a little, but not a lot, more likely to be business owners. But, as our new report shows, immigrants are truly playing an outsized role as owners of Main Street businesses.

David Dyssegaard Kallick

Interactive immigration graphic

This redirects the viewer directly to the link below. This page does not get displayed. This goes with the AS/COA report done by David.

Acknowledgements for Bringing Vitality to Main Street

In the research and writing of Bringing Vitality to Main Street: How Immigrant Small Businesses Help Local Economies Grow, I am deeply indebted to so many people that the full page of acknowledgments has to be posted online. —David Dyssegaard Kallick, author, Bringing Vitality to Main Street: How Immigrant Small Businesses Help Local Economies Grow.

Kate Brick policy manager at the Americas Society/Council of the Americas (AS/COA), was a valuable partner from beginning to end in the conception, design, and editing of this report. Former AS/COA policy manager Richard André was also a key part of the initial framing of the research, and policy associate Steven McCutcheon Rubio played the central role in editing the final report. And Adriana La Rotta, director of media relations for AS/COA, was tremendous in helping to get this report out to the press. I know that more of AS/COA’s staff worked in ways I didn’t even see, for which I am also thankful.

My colleagues at the Fiscal Policy Institute (FPI) were central to the project. James Parrott, deputy director and chief economist of FPI, gave valuable input on a daily basis every step of the way. Interim executive director Ron Deutsch provided support and encouragement as well as overall guidance to the project. Bryan LaVigne, director of administration and development, helped keep the considerable logistics around the report on track. Research associates Hui Liu and Eloy Fisher performed the data analysis that is the basis for our charts and tables, as well as much more that informed the research and didn’t make it into the final report. FPI’s partners at the Center on Budget and Policy Priorities, particularly Michael Leachman, director of state fiscal research, provided invaluable guidance on how to make this research most useful to groups in its State Priorities Partnership around the country.

FPI is grateful, as am I personally, for the tremendously valuable input of the expert advisory panel to our Immigration Research Initiative: Jared Bernstein, senior fellow of the Center on Budget and Policy Priorities, and former chief economist and economic advisor to Vice President Joe Biden; Muzaffar Chishti, director of the Migration Policy Institute’s office at the New York University School of Law; Gregory DeFreitas, professor of economics and director of the labor studies program, Hofstra University; Héctor Figueroa, secretary-treasurer, 32BJ of the Service Employees International Union and member of the editorial board of the New Labor Forum; Nancy Foner, distinguished professor of sociology at Hunter College and the Graduate Center of the City University of New York; Philip Kasinitz, professor of Sociology, CUNY Graduate Center; Peter Kwong, professor of urban affairs, Hunter College; Ray Marshall, Former Secretary of Labor, Audre and Bernard Rapoport Centennial Chair in Economics and Public Affairs at the University of Texas, Austin, and chair of the AFL-CIO Immigration Task Force; John H. Mollenkopf, distinguished professor of Political Science and Sociology at the Graduate Center of the City University of New York and director of the Center for Urban Research; Jeffrey S. Passel, senior demographer, Pew Hispanic Center; Max J. Pfeffer, Professor of Development Sociology at Cornell University; Audrey Singer, senior fellow in the Metropolitan Policy Program at the Brookings Institution; and Roger Waldinger, distinguished professor of Sociology at UCLA. Jill Wilson at the Brookings Institution shared with us her geographical coding and general expertise, which was a tremendous help in our metro area analysis. Steve Tobocman, director of Global Detroit, shared his insights as well as extensive contacts. And, Colin Gordon, Colin Gordon, Professor of History at the University of Iowa and a Senior Research Consultant at the Iowa Policy Project, helped us get our interactive web features online.

And, in the three metro areas I interviewed the following people, whose willingness to take time out to talk with me I enormously appreciate.

In Philadelphia: Gilberto Alfaro, Jr, business district manager, HACE; Amanda Bergson-Shilcock, senior analyst at the National Skills Coalition and at the time of the interview vice president for policy and evaluation at the Welcoming Center for New Pennyslvanians; Etan Brandt-Finnell, member experience, Impact Hub; Samuel Kuang-hsien Chueh, business services manager, Philadelphia Department of Commerce; Hyunjin Choi, owner, Koko Discount; Abou Diallo, vendor on 52nd Street; Varsovia Fernandez, president and CEO, Philadelphia Hispanic Chamber of Commerce; Peter Gonzales, president and CEO, Welcoming Center for New Pennsylvanians; Laurel Klein, community kitchen project at Impact Hub; Ted Hall, president of the fashion store Babe; Lee Huang, senior vice president and principal, Econsult Solutions; Luis Mora, president and founder, FINANTA; Mercy Mosquera, general manager of Mixto and Tierra restaurants;Mohamed Mostafa, Variety Plus; Anatoli Murha, marketing and business development manager, Ukranian Self-reliance Federal Credit Union; Baba Njoro, vendor on 52nd Street; Herman Nyamunga, director, global enterprise hub & small business development, Welcoming Center for New Pennyslvanians; Anne O’Callaghan, founder, Welcoming Center for New Pennsylvanians; Jennifer Rodriguez, executive director of the Mayor’s Office of Immigrant and Multicultural Affairs; Aron Starosta, program manager, Digital Health Accelerator; Fernando Treviño, deputy executive director of the Mayor’s Office of Immigrant and Multicultural Affairs; Ahmad Qardi, vendor on 52nd Street; Helen Woo, owner of King’s Fashion.

In Minneapolis-St. Paul: Abdirahman Ahmed, owner, Sabri Somali restaurant; Bill Blazar, interim president, Minnesota Chamber of Commerce; Bruce P. Corrie, associate vice president for university relations and professor of economics at Concordia University, and an invaluable resource regarding immigrant entrepreneurship in the twin cities; Becky George, cultural events and property manager, Neighborhood Development Center; Hector Garcia, Chicano Latino Affairs Council; Gene Gelgelu, African Economic Development Solutions; Manny Gonzalez, owner of Manny’s Tortas; Ben Johnson, real estate project developer, Neighborhood Development Center; Jan Jordet, senior director of consulting and financing services, Metropolitan Economic Development Association (MEDA); Michou Kokodoko, senior project manager, community development, Federal Reserve Bank of Minneapolis; Kathy Moriarty, director of training and chief administrative officer, Neighborhood Development Center; Kathy Mouacheupao, Local Initiatives Support Corporation; Adam Platt, executive editor, Twin Cities BusinessNieeta Presley, The Aurora/St. Anthony Neighborhood Development Corporation; Earlworth Baba Letang, market manager of Midtown Global Market, Neighborhood Development Center; Samir Saikali, manager of grants and data, Neighborhood Development Center; Nasibu Sareva, executive director, African Development Center; Brian Singer, director of lending, Neighborhood Development Center; Lisa Tabor, Intercultural Cities Project; Mihailo Temali, founder and CEO of the Neighborhood Development Center; Va-Megn Thog, Asian American Development Association; and Jay Walljasper, senior fellow and editor of On the Commons.

In Nashville: Rick Bernhardt, executive director, Metropolitan Nashville-Davidson County Planning Department; Yuri Cunza, president, Nashville Hispanic Chamber of Commerce; Katharine Donato, professor and chair of Sociology, Vanderbilt University; Paul Galloway, incoming executive director, American Center for Outreach; Howard Gentry, county clerk, Davidson County Criminal Court; José Gonzalez, instructor of entrepreneurship and management, Belmont University, and a co-founder of Connexión Américas; Frank Harrison, member of the Nashville Metropolitan Council; Garrett Harper, vice president of research, Nashville Area Chamber of Commerce; Shanna Singh Hughey, director of the Mayor’s Office of New Americans; Galen Spencer Hull, president of Hull International and a dynamic and tireless advocate for immigrant entrepreneurs in Nashville; Nicholas Lindeman, economic and systems data analyst, Nashville Area Metropolitan Planning Organization; Avi Poster, a retired school teacher and administrator and leader in Nashville groups addressing among other issuers race relations, immigration, and disability rights; Michael Skipper, executive director, Nashville Area Metropolitan Planning Organization; Renata Soto, co-founder of Connexión Américas; Remziya Suleyman, outgoing executive director of American Center for Outreach; Stephanie Teatro, interim co-director, Tennessee Immigrant Rights Coalition; Gatluak Thach, president and CEO of the Nashville International Center for Empowerment; and Matt Wiltshire, director of the Economic and Community Development Office of the Mayor of Nashville.

NYC Median Family Income Up for First Time since Great Recession

October 15, 2014. After five years of decline, median family income in New York City rose by 3.5 percent between 2012 and 2013 in inflation-adjusted terms, according to recently-published Census data.[1] This compares with increases of 0.9 percent at the national level and 1.6 percent for all of New York State, including the city.

While the city’s increase far surpassed the nation’s and state’s, median family income in the city was still 5.2 percent lower in 2013 than it had been in 2008 at the start of the Great Recession. The corresponding national and state declines for the 2008 to 2013 span were 6.6 and 4.0 percent, respectively.

What explains this fairly solid one-year increase in family income? Did the finances of the typical New York City family, while not yet having made up the ground lost since 2008, get a healthy boost? An examination of other new Census data provides a mixed picture. Yes, there was improvement in some labor market outcomes, indicating that some of the city’s families did indeed see their incomes rise. The new data, however, suggest that an out-migration of low- and middle-income families and an in-migration of higher-income families also partially accounts for the increase in city median family income.

First, the good news—several indicators show that 2013 saw some improvements in the city’s labor market. For New York City residents, the employment rate—the number of people employed relative to the population aged 16 and up—increased by nearly half a percentage point from 2012, rising from 56.8 to 57.2 percent. The state’s employment rate also rose by the same amount, whereas the national rate dipped by 0.4 percentage points. The city’s increase continues a steady climb back from the 55.8 percent low seen in 2010. Having a larger share of the city’s working-age population employed obviously benefits family incomes.

Further, median wage and salary earnings, adjusted for inflation, increased by 1.5 percent, rising from $34,526 to $35,057. Over the same period, median earnings increased at a much lower rate (0.6 percent) at the national level and fell by 2.4 percent statewide.

Next, the share of city residents holding private wage and salary jobs versus being self-employed also rose in 2013. Private wage and salary jobs in New York City, on average, have earnings 60 percent greater than self-employed earnings. As a share of the total job pool, those holding private wage and salary jobs increased by nearly one percentage point (rising from 79.8 to 80.7 percent), while the share who are self-employed dropped by nearly half a percentage point (from 6.6 to 6.2 percent). Again, this is a positive shift from the standpoint of family incomes. (The share holding government wage and salary jobs also declined in 2013.) In contrast to the city, the national and state data show roughly half-percentage point gains in the share of jobs held by private wage and salary earners, and very small 0.1 percentage point declines in the self-employment share.

Looking at the employment of city residents by occupation and industry, two other statistics also suggest why the incomes of the city’s families may have increased. Among the five broad occupational groupings, the largest increase between 2012 and 2013 was in Management, Business, Science, and Arts. This category comprises relatively high-paying jobs, and the share of resident workers employed in these fields increased by nearly one percentage point (0.9 of a percentage point). This occupational grouping also ranked first with respect to growth nationally and statewide, but the respective share increases (0.2 and 0.7 of a percentage point) were smaller.

In terms of changing shares of jobs by industry, of the 13 broad industry groups, the largest share increase in the city (half of a percentage point) was for Professional, Scientific, and Management, and Administrative and Waste Management Services (reported as one broad industry grouping). Generally, this category is associated with relatively high-paying jobs. The share of jobs falling under this umbrella also registered the largest increase at the state level (0.5 of a percentage point) and nationwide (0.2 of a percentage point).

While these developments—increased employment rate, increased share of jobs held by private sector wage and salary earners, and increase in the share of jobs in relatively high-wage occupations and industries—offer clues as to why the city’s median family income rose in 2013, the new Census data also suggest that the increase in median family income may reflect both the in-migration of higher-income families and the out-migration of lower-income ones.

As shown in the table below, the number of families in the top Census Bureau income bracket—$200,000 and up—increased by 19,000, nearly 14 percent, approximately double the rate of increase at the national level and more than one-and-a-half times the rate of increase statewide. There was an overall 10,000 net increase in the number of New York City families from 2012 to 2013.

All of the top four New York City income brackets saw gains in the number of families. An influx of high earners accounts for some of the increase in the median family income and is consistent with the growth in higher-wage jobs and educational attainment. The share of city residents with at least a bachelor’s degree increased by 1.1 percentage points, far outstripping the national 0.7 percentage point increase and the 0.5 percentage point statewide increase.

At the other end of the income spectrum, the number of families in the city’s three lowest income brackets shrank. While some families likely moved up the income ladder over the past year, the much larger magnitude of the net increase among the top three income brackets compared to the net decline among the bottom three brackets (a gain of over 27,000 vs. a decline of nearly 18,000), suggests a net influx of families with high incomes. The net decline in the number of lower-income families may reflect some out-migration. Some of the job growth in high-paying occupations and industries benefitted new in-migrants, particularly given that the disproportionate increase in just one year in the share of city residents who are highly educated is most likely associated with in-migration.

In conclusion, the reversal of the five-year recession-related decline in the city’s median family income offers some encouragement. Between 2008 and 2012, New York City’s median family income fell by $5,100, an 8.4 percent drop. In 2013, the median gained by nearly $2,000, a 3.5 percent rebound. The new Census figures show some clear positive signs of an improving job market. However, in looking at the broader picture painted by the Census data, it appears that a significant part of the income rebound reflected a demographic shift with respect to income levels of the city’s families.

Taking into account the much more rapid growth in high incomes in New York City than in the nation, and the greater proportionate decline in the share of families with lower incomes, this shift means that roughly 10,000 families moved from below the median in the $56,000-to-$58,000 range to above the median. Given that there are roughly 10,000 families in each $1,000 increment of the city’s income distribution in the range from $50,000 to $60,000, this change alone would have lifted the median point from $56,000 to $57,000, an increase of 1.8 percent. Thus, we conclude that about half of the city’s 2013 3.5 percent median family income growth is due to the in-migration of higher-income families and the out-migration of lower-income families.

 

By Michele Mattingly, Research Associate, and James Parrott, Deputy Director and Chief Economist

 

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[1] FPI analysis of Census American Community Survey data. Census estimates adjusted for inflation by FPI using U.S. City Average All Urban Consumers Consumer Price Index.

FPI proposes a tax on the most expensive NYC pied-à-terre residential units

September 22, 2014. By James Parrott, FPI Deputy Director and Chief Economist.

Introduction

In the context of the continued global concentration of income and wealth, a growing number of ultra-luxury residences in New York City are being bought by people who are not full-time city residents. For many such owners, a Manhattan pied-à-terre is one among several residences they own around the world for occasional use. Some owners see it as an investment, or simply as a place to park a portion of their substantial wealth. The City’s Independent Budget Office notes that in some of the newer luxury residential developments being built in Manhattan, the share of owners who are not primary residents “could approach 50 percent.”[1]

Such non-primary owners are unlikely to be paying New York City personal income tax, and because of the arcane nature of the City’s property tax, or because such units benefit from tax breaks mainly intended to benefit more affordable housing for low- and middle-income residents, chances are they pay a very low effective property tax relative to the real market value of the property. Yet, the high value of their property depends on local tax dollars supporting the infrastructure and public services that contribute to the city’s quality of life and attractiveness.

Background

According to NYC Department of Finance, there are nearly 89,000 coops and condos in NYC owned by persons for whom the unit is not their primary residence. State legislation enacted in 2013 phased out these units from eligibility for the coop & condo tax abatement. The total annual tax savings to the City from this exclusion will eventually be $120 million.

Based on citywide ratios, the estimated “market value” for these nearly 89,000 units is about $20 billion. This is the Department of Finance “market value” estimate based on the assessment method currently mandated by state law that bases the value of coops and condos on the income of comparable rental buildings.

The City’s Independent Budget Office estimates that, based on citywide averages for FY 2012, the DOF “market value” reflects about one-quarter of a sales-based market valuation method. Thus, an IBO-adjusted sales-based market value would be a very conservatively-estimated $80 billion for these 89,000 non-primary resident coops & condos. The true aggregate market-value of such units could be much greater. Owners of pieds-à-terre very likely own units more expensive than the average NYC coop or condo, plus there have been several buildings go up in recent years catering to the ultra-expensive end of the market, with many news stories about units selling in excess of $50 million each.[2]

Proposal to tax high-end pieds-à-terre

  1. Rationale: Non-primary residents do not pay NYC personal income tax and their units are being phased out of eligibility for the coop & condo tax abatement per the renewal legislation enacted in early 2013. These owners bid up the price of NYC residential real estate, and since they don’t spend much time in these units, contribute little to the local economy compared to full-time residents. There are many flaws to the city’s current property tax system, so many of these properties are paying very little in regular property tax to begin with, and some of the most expensive recent developments with ultra-luxury coops have received special tax breaks courtesy of Albany, despite the action with regard to the coop & condo tax abatement.
  2. Apply a graduated 4% tax based on comparable sales-based market value over $5 million. (The following estimates are based on coops and condos only, although the proposal should also extend to single-family homes as well. The Fiscal Policy Institute estimated the number of non-primary resident coop & condo units valued in excess of $5 million—1,556—and estimated the distribution of the value of units above $5 million.)
  3. With the tax starting at 0.5% for the first $1 million in value over $5M, and rising such that the 4% rate applies for the value over $25 million, an estimated $665 million could be generated from the 1,556 coops and condos that have a sales-based market value in excess of $5 million and that are owned by non-primary residents.
  4. Thus, this proposal would affect only 1.75% of all non-primary resident owned coops & condos (1,556 out of 88,851), but these units valued at >$5 million account for a third of the total market value of all non-primary resident coops and condos ($26.1 billion out of $79.9 billion).
  5. The proposed tax is really geared to reach the most expensive pieds-à-terre, those valued at $25M+. There are an estimated 445 such units and they would pay 83% of the proposed tax, i.e., $551 million of the $665 million total. That means an average tax of about $1.2 million for these 445 units. The graduated rate structure means that even these top-selling units would pay an effective tax of only 3.44%. Units $10M-$25M would pay an effective tax of only 2%. Units valued from $5 million to $10 million would pay an effective rate of less than 1%.
  6. The 4% tax could generate more if there are a significant number of non-primary resident owned single family homes.

*    *    *

This proposal was featured in an article by Dana Rubinstein in the Capital New York online news organ on September 22, 2014, “Could de Blasio do a pied-à-terre tax?”

 


[1] New York City Independent Budget Office, Budget Options for New York City, December 2013, p. 53.

[2] See, e.g., Andrew Rice, “Stash Pad,” New York Magazine, June 29, 2014.

Hundreds of thousands of low-income families would benefit from a New York minimum wage increase

July 17, 2014. David Neumark’s piece in the July 6 Wall Street Journal (“Who Really Gets the Minimum Wage?”) argues that because some low-wage earners are in high-income families, increasing the minimum wage isn’t a very effective way to reduce poverty. In particular, he cites research to the effect that “if we were to raise the minimum wage to $10.10 nationally, 18% of the benefits of the higher wages (holding employment fixed) would go to poor families [but] 29% would go to families with incomes three times the poverty level or higher.”

But what is more relevant, more than half (52%) of those who would get a raise if $10.10 became the new minimum are in families whose incomes are below twice the federal poverty level (FPL)—i.e., those who are poor or near-poor. And in the New York State or City context, that would affect a huge number of low-income families.

In New York State, the numbers are similar: 52% of those earning less than $10.10 per hour are in families below twice the FPL (with 23% in families below the FPL.) Even among all those earning less than $14 an hour, 43% are in families whose income is below twice the FPL (Figure 1). Of the 1.3 million wage-earning New Yorkers in poor or near-poor families, 735,000 (57%) would get a raise if the minimum were increased to $10.10.

The federal poverty standard was originally established in the 1960s when food was a much larger share of family expenses. It has only been adjusted for over-all consumer prices since, and because it is not adjusted for regional cost of living differences, it is a terribly inadequate indicator of whether a family is “poor.” While the FPL in 2010 for a 4-person family with two children was $22,000, such a family would have needed to earn $55,400 in Erie County, NY; $49,900 in Tompkins County; or $79,900 in Nassau County, in order to meet basic family budget needs to pay for housing, food, child care, clothing, transportation and other necessities. Even families at twice the FPL must count every penny.

In New York City, there is an even closer relationship between low wages and family poverty. In the city, 29% of those earning less than $10.10 an hour are in families below the FPL, and 66% of their families have income below twice the poverty level. Among all those earning less than $14 an hour in the city, 55% are in families with incomes below twice the FPL (Figure 2). Of the 694,000 wage-earners in poor or near-poor families, 435,000 (63%) would get a raise with a $10.10 minimum.

Neumark argues that increasing the Earned-income Tax Credit (EITC) would be a better way to aid working people. The EITC is indeed a program that should be enhanced, at the federal, New York State, and New York City levels. But the EITC cannot handle the job alone (remember that the tax benefit shows up only once a year, while low wages show up every week); increasing low-wage workers’ net income through a combination of a higher minimum and a richer tax rebate via the EITC would be the best approach.

Given that the purchasing power of the minimum has fallen so far, raising it will help raise many families of low-wage workers out of poverty. To suggest that it will not help the poor enough is the height of disingenuousness.

We should also remember that since the original minimum wage was part of the Fair Labor Standards Act, it was always intended to be a floor under wages, a way to limit the race to the bottom that happens whenever the labor market is weak. If the floor sinks in real terms—as it has been for decades—financial security for all wage-earners is in jeopardy.

Brent Kramer, FPI Senior Economist

 

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Family poverty status Total
Under federal poverty level Under 2 x FPL Under 3 x FPL 3 x FPL or more
Hourly wage Under $10.10 23% 52% 70% 30% 100%
Under $12 19% 49% 69% 31% 100%
Under $14 16% 43% 66% 34% 100%
All 5% 17% 33% 67% 100%

Parrott Presentation: Confronting New York City’s Retirement Crisis

June 17, 2014. The New York City Central Labor Council and the Schwartz Center for Economic Policy Analysis at The New School sponsored a June 17 conference, Confronting New York City’s Retirement Crisis. FPI’s James Parrott made one of the opening presentations at the conference. Other speakers included State Comptroller Thomas DiNapoli, New York City Comptroller Scott Stringer, and New York City Public Advocate Letitia James, as well as leading labor union officials, union pension experts, and academic and finance sector experts. National retirement security expert Teresa Ghilarducci of the New School co-convened the conference together with Vinny Alvarez, President of the New York City Central Labor Council. Ghilarducci also moderated the two panel discussions. In his remarks, Parrott discussed the economic implications of the aging of New York City’s population and workforce, and he reviewed racial and economic disparities in retirement income sources for New York City’s elderly population.

Over one-third of New York City employees are paid less than $14 an hour; workers of color are twice as likely to be low-wage

June 17, 2014. The Fiscal Policy Institute (FPI) released a new data brief today showing the sector of employment and race/ethnicity for New York City workers paid less than $14 an hour. On an annual basis, $14 an hour would put a family $1,900 below the $31,039 poverty threshold for a New York City family.

Altogether, 1.2 million New York City workers are paid less than $14 an hour, 36 percent of all public and private wage and salary workers. This includes part-time as well as full-time workers.

The FPI analysis showed that the largest employers of low-wage workers are the Leisure & Hospitality and Retail Trade sectors. Sectors with the greatest reliance on low-wage workers relative to their total employment are, in order, Home Health Care, Leisure & Hospitality, Retail Trade, and Social Services.

According to James Parrott, FPI’s Deputy Director and Chief Economist: “Nearly four out of five low-wage New York City workers are persons of color, and workers of color are twice as likely as a white, non-Hispanic worker to be low-wage—48% of black workers and 55% of Latino workers are paid less than $14 an hour, while 23% of white workers are paid less than $14 an hour.”

The report noted the difference that union representation makes to the works employed in otherwise low-wage sectors like Retail Trade and Leisure and Hospitality. Stuart Appelbaum, President of the Retail, Wholesale and Department Store Union stated: “The disturbing numbers in FPI’s report show what happens when workers are not able to act collectively to improve their lives. We need policies in place that increase unionization and give voice to these hardworking people in New York City. When workers have the support of a union they are able to live better lives and survive economically in this city.”

Parrott observed that in addition to unionization, low-wage New Yorkers would benefit if New York City is permitted to establish a minimum wage higher than the statewide minimum. Legislation pending in Albany would grant New York City the authority to set its own minimum wage.

Statement on New York City Budget Accounting Action

May 12, 2014. Today’s joint announcement by Mayor de Blasio and Comptroller Stringer clarifies a City budget accounting question regarding an obligation the City incurred in connection with the recent labor settlement with the United Federation of Teachers.  The payments in question pertain to UFT members retiring after June 30, 2014 and cover wage increases for the first two years (2009 and 2010) of the recently settled contract.

Officials of both the Mayor’s and the Comptroller’s offices have confirmed that the announcement is strictly an accounting issue, and that it has no effect on the UFT settlement, the costs of that settlement, or any individual UFT member.

Similarly, the change has no net budget or financial impact. The change is strictly an accounting one pertaining to the payments due post-6/30/14 retirees. The change simply advances recognition of that obligation into FY 2014 from FYs 2015, 16, 17 and 18.

The result will be to increase the FY 2014 labor reserve amount, and to offset it by a like reduction in the FY 2014 Budget Stabilization payment. The FY 2014 Budget Stabilization is the expenditure item wherein the City would pre-pay FY 2015 debt service or other obligations coming due in FY 2015 as a long-established budgeting mechanism to “roll” surplus monies from one year to the next.

My understanding is that the monies will remain in a “FY 2014 labor reserve” budget line until paid out. In the FY 2015 Executive Budget released last Thursday, those monies were incorporated into the labor reserve for the future fiscal year in which the retirements were projected to occur. Thus, the combined labor reserves for FY’s 2015-18 will be reduced by the amount by which the FY 2014 labor reserve is increased.

These changes will be incorporated in budget documents when the Adopted FY 2015 Budget, reached with the Council prior to the end of the current fiscal year, is published. In a conference call Monday afternoon, Budget Director Dean Fuleihan indicated that the exact dollar amount of the labor reserve change had not yet been finalized but that it was expected to be in the several hundred million dollar range.

While this is not a routine or inconsequential budget development, it is understandable given the fact that a historically unprecedented long-term labor agreement was finalized within a few days of the presentation of the Executive Budget. As the City’s chief financial officer and final arbiter on accounting matters, the Comptroller’s Office requested the change in the accounting treatment that was mutually agreed-to today.

James Parrott