Why People Leave New York and Other Taxing Climes

Some countries, some states, and some cities are enjoying big growth rates and some aren’t.

Why?

In part, it’s because some politicians are unaware or maybe don’t care about the damage their taxes, work rules and the standard of education——how prepared the average young person is to work after 12 or 16 years or more in school—–can do to an economy. Many pols are merely interested in how much money they can get out of businesses and individuals today. They give little thought to the long term damage their policies do to the economy of a state or a city.

Publicly they may say they care about the problems of the unemployed, the young people with few job prospects who have quit on the economy and no longer seek work, especially when they are seeking their votes. However, once in office for another two of four years, it becomes apparent that these pols have little idea how an economy works and why it doesn’t. Why should they? How many of them have actually met a payroll?

Consider where I live: New York City, New York, the financial capital in a nation that has the biggest economy on the planet. It is a place that can generate plenty in taxes, even at relatively low rates, without strangling businesses and leading its middle class to hit the road. Yet Money Magazine, a few years ago, called New York City “tax hell.” Not much has changed since then. Indeed, the advent of a new municipal administration pledged to correcting “income inequality” can make the city’s difficult business environment even more difficult.

Indeed, city and state mandates, onerous work rules and excessive taxes continue to hurt the New York economy, according to several business experts.

These include several scheduled increases in the state minimum wage law—-a law that many small business owners say will keep them from hiring new workers—-new city paid sick leave rules for small businesses, high construction costs and burdensome taxes hurt job creation.

“The first obstacle is the tax climate. And I think everyone would recognize that as being a huge obstacle in New York,” said Heather C. Briccetti, President and CEO of the Business Council of New York State. “Everyone recognizes it is a problem, but anytime you suggest tax reform and taking taxes off the table, it becomes a contentious issue,” she said.

“New Yorkers shoulder the highest state and local tax burden in the country. The states that are growing the fastest are those states that with relatively low taxes,” says Brian McMahon, executive director of the New York State Economic Development Council.

He added that “costs matter.” McMahon predicted that until the state changes its policies, job creation “will lag” behind the rest of the nation. Still, he said New York Governor Andrew Cuomo’s recent tax reduction proposals are taking the state “in the right direction.”

Well, maybe, but we have a long way to go.

Separately, the New York State Labor Department reported that 5,400 new jobs were created in January, with the unemployment rate declining from 7.0 percent to 6.8 percent. Those job creation numbers and jobless figures are so-so. They lag other states with lower taxes and, in some cases, no state income taxes. Indeed, Briccetti added that state and city tax levels combined with hidden surcharges on energy are hurting the region’s economy. She added that taxes on sole proprietor businesses are “high.”

These small businesses were recently required, under a new city law, for the first time to provide workers with paid medical leave. Before, only small businesses with 15 or more employees were required to provide the coverage. The new law now covers businesses with five or more employees. Mayor Bill de Blaise, in signing the new rule into law, praised small business owners. He said they “are very inventive” at coping with new rules and regulations.

De veras?

De Blasio, who the same as most career politicians has never had to build a small business, has doubters. They believe imposing a new cost on small businesses will be a problem.

“We’re hearing from our clients that it’s not as easy as that,” said Michael Trabold, director of compliance for Paychex, a firm that outsources many of the accounting and other functions for small businesses in New York. Trabold said the problem with the new rule is not only the cost but the “additional record keeping requirements” that are now required.

Many small businesses, he added, are finding it difficult to hire because of the new law. Trabold noted that scheduled minimum wage increases—-the state minimum wage is slated to reach $8.75 the end of the year—-are a frequent complaint of his clients.

“There is definitely a correlation between raising the minimum wage and a small business’ desire to hire new workers,” Trabold said.

A new federal study found that raising the federal minimum wage would have mixed results. Some workers would see income rise above the federal poverty threshold.

“But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share low-wage workers who were employed would probably fall slightly,” according to the Congressional Budget Office (CBO) study, “The Effects of a Minimum-Wage Increase on Employment and Family Income.”

The CBO estimates that raising the federal minimum wage to $10.10, now under discussion, would “reduce total employment by about 500,000 workers.”

Other measures needed for the city and state’s economy to create a stronger economy, business leaders added, include better educated young workers. Briccetti complained that almost 2/3 of young people are graduating high school without the skills needed to obtain entry level jobs. Yet, this is a state that has some of the highest per capita education spending in the United States. Why isn’t this money more effectively used and why are experiments in education—such as charter schools—so often opposed by so many politicians and their teachers’ unions allies?

But there are other problems also hurting New York’s economy. Business leaders active in the housing industry contend that the state is overdue for scaffold law reform.

“New York is the only state in the country that has a strict liability standard for injuries occurring as a result of a fall from a scaffold or ladder. The standard applies even if the worker is drunk or drugged. It is a black eye for New York and highlights the state’s onerous regulatory environment,” McMahon complained.

He added that construction and insurance industry studies show that the standard adds $10,000 to the price of a new home. And that, combined with high property taxes, means a lot of New Yorkers with middle-incomes can’t afford to buy an apartment or a house. Indeed, a just released state report found that fewer and fewer New Yorkers can afford to buy a home.

“Regardless of where they live, more New Yorkers are feeling the pinched by rising housing costs,” said New York State Comptroller Thomas DiNapoli. “When half your income goes to pay for a place you live, you are going to be stretched thin on other everyday purchases.”

So why don’t builders come to New York City and put up lots of new units?

Costs, whether scaffold laws, taxes or arcane rent control laws that often benefit the wealthy tenant, matter. If you want more jobs, more construction and more homes, trying cutting taxes, crazy work rules and stopping politicians without any business experience from telling someone how to run a business.

In New York, and in countless other taxing climes, less would be more—-much more jobs.

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.