SECTION 1: TAXES AND OTHER REVENUES
This section identifies the relative cost
of state and local government in different places.
It tabulates the share of their income New York State residents
have to pay in state and local taxes, and how much New York’s state
and local governments collect in other types of revenue such as inter-governmental
aid and charges for services, compared with other parts of the country. Data is presented for different regions of
New York State, New Jersey, and the national average. The 1997 Census of Governments is the primary data source.
CHART 1.1: STATE AND LOCAL TAXES
Sources: Census of
Governments. Income: Bureau of Economic Analysis. See introduction for details.
New York’s taxes are unusually high, primarily
as a result of high local taxes.
In fiscal 1997, New York’s
state and local taxes absorbed 14.2 percent of the income earned by
New York State residents, 28 percent more than the national average
of 11.1 percent. This was the
highest level of any state except Alaska, where oil extraction taxes,
not residents and other businesses, fund the higher burden. Tax by tax, year by year discussions miss the
bottom line point – in total state and local taxes, as a share
of income, vary little from state to state.
Forty-two of the 50 states collected more than 10 percent and
less than 13 percent of their residents’ incomes in state and local
taxes. Such varied states as New Jersey, California,
Illinois, Washington, and North Carolina all fall within that range.
Maine is the only state other than New York and Alaska over 13 percent,
and the five states below 10 percent rely on state liquor stores, charges,
and/or above average federal aid for a substantial share of their revenues.
While New York’s combined state and local taxes are unusually high,
its state taxes are below the national average.
Its local taxes are the highest in the nation. Only New Hampshire collects a higher share of its state and local
taxes at the local level.
In New York State, state taxes have fallen
substantially since 1972, while local taxes have fallen only slightly. Nationally, state taxes have risen since 1972,
while local taxes have fallen substantially. California has led the latter trend. In 1972 it had high combined
state and local taxes, low state taxes, and very high local taxes, like
New York State today. Proposition
13, a referendum that limited local taxes, forced a greater share of
California’s total spending to be funded at the state level. Since the state was accountable for both the benefits and the costs
of the services it mandated, it felt pressure to provide a better balance
between the two, and its overall tax burden fell to the national average
by 1997. Massachusetts followed
a similar trend over the past 30 years – rising state taxes, falling
local taxes, and lower state and local taxes overall.
For a spreadsheet with data for all states, click
here.
CHART 1.2: STATE
AND LOCAL TAXES, 1972 TO 1997
Sources:
1997 Census of Governments.
Income: Bureau of Economic Analysis.
See introduction for details.
New York’s state and local taxes were even
higher in the past, but local taxes remain high.
New York State’s state taxes have
fallen substantially as a share of its residents’ personal income,
but its local taxes have fallen far less.
As late as fiscal 1986, New York’s state taxes absorbed
7.6 percent of its residents’ personal income, 17.2 percent higher
than the national average (6.5 percent of income). By 1994, state taxes had fallen to 7.2 percent
of income in New York State, but had risen to 6.7 percent nationally. New York’s state taxes fell further to
6.6 percent of income in fiscal 1997, 3.4 percent below the national
average of 6.8 percent.
New York State’s local taxes have
remained high as a share of income, however, even as the national average
has fallen substantially. In fiscal 1972, local taxes absorbed 7.8 percent
of New York State residents’ personal income.
Although slightly higher than today, this was only 42 percent
above the 1972 national average, at 5.5 percent of income. New York’s local taxes soared to 8.7 percent of income in 1977,
72 percent above the national average, and have remained at least 70
percent above average ever since. New
York State’s local taxes have fallen since then, but average local
taxes fell faster, to just 4.0 percent of income in 1982.
From 1994 to 1997, the New York State’s local taxes fell
only slightly, and remained 76 percent above average. Therefore, the
tax reduction benefits of the first part of the 1990s boom were captured
by the state, even though state taxes were not high to begin with, and
local taxes were high.
New York’s overall state and local
taxes, as a share its residents income, were 24.8 percent higher than
the national average in fiscal 1972.
After peaking at 42 percent above the national in fiscal 1986,
they fell to 35 percent above average in fiscal 1994 and 27.5 percent
above average is fiscal 1997. For a spreadsheet of this data, click here.
CHART 1.3: 1997 STATE AND LOCAL
TAXES
Sources:
1997 Census of Governments.
Income: Bureau of Economic Analysis.
See introduction for details.
New York City had the highest local taxes of the
four state regions, and had much higher state and local taxes than average.
The chart above assumes that the burden
of state taxes is distributed to different parts of the state in proportion
to personal income, and that therefore state taxes absorb 6.6 percent
of the personal income of state residents in every part of New York
State. Given that assumption, New York City’s state and local taxes
absorbed 14.8 percent of the personal income of New York City residents
in fiscal 1997, more than in the other regions of the state and 33 percent
more than the national average. The author had expected New York’s Downstate
Suburbs to have the lowest state and local taxes as a share of income,
since their average incomes are high.
The data show, however, that Downstate Suburban taxes, at 14.4
percent of personal income, were the second highest of the four state
regions, 30 percent higher than the national average and 30 percent
higher than the average for New Jersey.
It is the Upstate Metro areas that had
the lowest state and local taxes in the state, at 13 percent of their
residents’ incomes. Even so, that was a higher share of personal
income than in any other state except Alaska and Maine. The Rest of New York State also had high state
and local taxes as a share of its residents’ incomes, at 13.7 percent.
Some of those taxes are paid by second homeowners, whose incomes
are recorded elsewhere, rather than by full time residents.
In 1990 eleven percent of all the housing units in the rest of
New York State were second homes, with more than twenty percent in some
counties. Still, taxes were high in less affluent rural
New York State counties.
These results roughly match those of an
analysis by the New York City Independent
Budget Office. Using different data sources, the IBO also
found that New York City’s local taxes were higher than in other
parts of the state (and, based on a second analysis, other parts of
the nation). It found, however, that the Downstate Suburbs
had lower local taxes as a share of income than Upstate New York.
These results also match a tabulation
by the District of Columbia, published each year by the U.S. Department
of Commerce, Bureau of the Census, in the Statistical
Abstract of the United States. This tabulation found that despite below average
property taxes, New York City homeowners pay higher state and local
taxes as a share of income than residents of most other cities, once
the City’s local personal income tax is taken into account.
For a spreadsheet of local taxes as a
share of income for all New York State counties, click here.
CHART 1.4: 1997 LOCAL TAXES BY
TYPE AND AREA
Sources:
1997 Census of Governments.
Income: Bureau of Economic Analysis.
See introduction for details.
New York State’s local tax structure was
disadvantageous to new businesses.
New York City’s property taxes are
just average by national standards, but the city is one of the few places
in the United States where individual and corporate income taxes are
levied at the local level. The City’s local personal and corporate
income taxes were equivalent to 3.1 percent of the income of New York
City residents in FY 1997. In
fact, New York City accounted for nearly one-third of the local personal
income taxes, and nearly all of the local corporate income taxes, collected
in the United States. The City’s local income taxes are not
felt evenly. People who are
self-employed in their own businesses have to pay not one but two local
income taxes, the personal income tax and the unincorporated business
tax. And while corporate taxes are high, many large
influential companies receive special tax deals, while most new businesses
do not. In New York City and
throughout New York State, local sales taxes are also well above the
national average. In most of
the Untied States sales taxes are collected primarily by state governments,
not local governments.
Outside New York City, however, high overall
local taxes lead primarily to very high local property taxes. In the Upstate Metro Areas, local property taxes are 50 percent
higher than the national average; in the Downstate Suburbs they are
double the national average and much higher than in New Jersey, also
a high local tax and high property tax state.
Property taxes are also high in the primarily rural counties
in the rest of the state, as a share of the income of county residents.
For a spreadsheet of this data, with data for all New York State
counties, click here.
High property taxes are especially burdensome
to new businesses (since they are passed on by landlords in the form
of higher rents regardless of profit) and land intensive farms.
Since property taxes are collected at the same rate regardless
of income and spending, high property taxes also fall harder on the
elderly and poor. While New
York City’s overall property taxes are average as a share of income,
low taxes for owners of one-to-four family homes are offset by high
taxes on commercial property, some of which have a commercial rent tax
as well. As in the rest of the
state, these taxes are a particular burden for new businesses that have
not benefited from special tax breaks.
CHART 1.5: 1997 STATE TAXES BY
TYPE
Sources: 1997 Census
of Governments. Income: Bureau
of Economic Analysis. See introduction
for details.
The State of New York collected more
taxes than average on income, and less on consumption and licenses.
Like New York City, New York State collects
a relatively high share of its revenues from income taxes.
New York State’s personal income tax absorbed 3.3 percent
of the income of New York State residents in FY 1997, 50 percent higher
than the national average of 2.2 percent, and even higher relative to
New Jersey’s 2.0 percent. New
York’s state corporate income taxes were about equal to the national
average and New Jersey, though corporations in New York City must pay
a local corporate income tax as well.
On the other hand, New York State collected
less than the national average, as a share of its residents’ income,
in sales and license taxes. For
general sales taxes, lower state collections offset higher local collections. New York’s state and local general sales tax collections combined
were 2.7 percent of New York State residents’ income, the same
percent as in the nation. New
York’s combined state and local sales tax rates are high, but New
York levies sales taxes on a narrower range of goods and services than
most other states. Many states, for example, collect sales taxes
on food. New York’s motor
vehicle fuel taxes and license taxes are not low as a share of gallons
purchased or vehicles licensed, but those living in New York City and
the Downstate Suburbs drive fewer miles than average, reducing the burden
of these taxes as a share of income.
These savings partially offset the various Metropolitan Transportation
Authority taxes, which the census bureau tabulates as state taxes even
though they are only levied in downstate areas.
MTA taxes accounted for 2.5 percent of NY State taxes collected
in FY1997.
A few states have state property taxes, on motor
vehicles for example, while New York State does not.
Nationally, state property taxes accounted for just 0.2 percent
of personal income, but they are an important revenue source in a few
states. To return to the tax types spreadsheet, click
here.
CHART 1.6: 1997 STATE & LOCAL
INTERGOVERMENTAL AID
Sources:
1997 Census of Governments.
Income: Bureau of Economic Analysis. See introduction for details.
The State of New York kept its taxes
low by shifting welfare and social services burdens to local governments,
especially New York City, and providing below-average state aid in other
categories to Downstate New York.
In addition to their own tax revenues,
state and local governments receive intergovernmental aid revenues from
other levels of government (for a revenues spreadsheet click here. In FY 1997, the aid revenue New York City received
from New York State was equal to 6.0 percent of the income of New York
City residents. Nearly half
of those revenues, however, were directed to New York City’s welfare,
hospitals, and housing programs, and some of that was first received
by the state in federal aid before being passed on to the city as state
aid. In most of the country, welfare is a state, not local, responsibility. Local governments in other parts of New York
State also received above average state aid for welfare, Medicaid, hospitals,
and housing programs, with the Downstate Suburbs receiving just over
the national average (since their dependent low income populations are
relatively small) and other areas receiving more.
The state aid New York City received to
fund other services equaled 3.2 percent of the income of city residents,
just below the national average of 3.3 percent.
State to local aid in other categories equaled 1.9 percent of
the income of residents of the Downstate Suburbs, 3.5 percent in the
Upstate Metro Areas and 5.6 percent in the Rest of New York State.
This state to local aid, however, was
offset in part by money that New York State requires local governments
to raise in local taxes, then pass back to it as local to state aid.
State-mandated local to state aid equaled 1.3 percent of the
income of New York City residents in FY 1997.
Most of this went for the local matching share of New York State’s
Medicaid program. In most states,
Medicaid funding is a state, not local, responsibility. Since most of the state’s Medicaid recipients
are concentrated in New York City, other parts of the state were required
to provide less “local to state” aid.
Even so, local to state aid equaled 0.5 percent of the income
of residents of the Downstate Suburbs, 0.6 percent in the Upstate Metros,
and 0.6 percent in the rest of New York State.
In fiscal 1997, New York State accounted for more than half of
the local to state aid in the entire country; New York City alone accounted
for 35 percent.
CHART 1.7:
1997 FEDERAL INTERGOVERMENTAL AID
Source:
1997 Census of Governments.
Income: Bureau of Economic Analysis.
See Introduction for details.
New York City receives above average
direct federal aid, but only in certain categories.
New York City captures a large amount
of direct federal to local aid, but only because New York Stare requires
it to provide welfare services within its borders, and because New York
City has a large, federally-subsidized low income housing stock.
New York City actually receives less direct federal aid than
average in other categories, just as it receives below average state
aid outside the welfare, housing and hospital categories.
Source:
1997 Census of Governments.
Income: Bureau of Economic Analysis.
See Introduction for details.
New York State received above average
federal welfare, housing, Medicaid and hospitals aid, but did poorly
in other categories of federal spending.
Most federal aid is distributed to states,
even if it is ultimately passed on to local governments.
In fiscal 1997, New York State received 40 percent more federal
aid than the national average, as a share of the income of state residents. All the additional funding, however, was accounted
for by higher than average spending in the welfare, housing, hospitals,
and Medicaid categories. The
majority of this was spent in New York City, where the majority of the
state’s poor, dependent households and public housing residents
lived. In other categories of federal aid, New York
State received just an average amount of aid as a share personal income. In particular, New York State receives a below
average share of federal aid for education (.37 percent vs. a national
average of .57 percent) and transportation and other infrastructure
(.35 vs. a national average of .40, with a far greater gap in many prior
years). While doing well in some types of federal intergovernmental
spending, New York State has traditionally done poorly in capturing
direct federal spending, such as federal contracts, research grants,
and facilities. For overall
data on federal spending by state, see www.nemw.org. For a spreadsheet of federal aid by type and year, click here.
CHART 1.8: MEDICAID MATCH AND POVERTY
BY STATE
Sources: Federal
matching share for Medicaid: U.S. Department of Health and Human Services,
Health Care Financing Administration (www.hcfa.gov). Poverty: U.S.
Department of Commerce, Bureau of the Census (www.census.gov).
New York State is severely disadvantaged
by the federal Medicaid financing formula.
The federal government provides a substantial
amount of welfare and Medicaid intergovernmental to New York State,
when measured as a share of the income of New York State residents. It does not, however, provide a high share of aid as a percent of
total welfare and Medicaid spending in the state. The federal matching share for Medicaid expenditures in New York
State is only 50 percent. The
federal government picks up more than two-thirds of the cost of Medicaid
in many other states.
The federal matching share formula is
based on per capita income, and takes no account of poverty or the number
of Medicaid and welfare recipients in a state.
It takes the difference between a state’s per capita income
and the national average and squares it, thus causing small differences
in income to lead to big differences in a state’s presumed ability
to pay. The minimum is 50 percent
federal, and the maximum is 80 percent federal.
As health care expenditures in general, and Medicaid expenditures
in particular, have grown, the federal Medicaid matching share has become
the most important factor in the relative level of state and local taxes.
In general, states with a lower federal matching share have somewhat
higher state and local taxes as a share of personal income.
Most states with low per capita incomes
are also states with high poverty rates, so in general the federal government
provides a higher matching share to high poverty states, as the chart
shows. But states with both high average incomes,
as a result of a concentration of very affluent households, and a high
poverty rate, are severely disadvantaged by the formula. The most disadvantaged place in 1997 was the District of Columbia,
which in 1998 had its federal share increased to 70 percent by special
legislation. New York State
and California are also highly disadvantaged.
In 1997 New York State’s poverty rate was slightly higher
than Alabama’s, but the federal government covered nearly 70 percent
of Alabama’s Medicaid costs, compared with only 50 percent for
New York State.
CHART 1.9: NY STATE MEDICAID EXPENDITURES,
BY SOURCE OF FUNDS
Source:
New York State Department of Health:
MARS 72 & 73 expenditures reports.
The New York State Medicaid finance
formula is highly disadvantageous to New York City.
The required local matching share for
Medicaid hurts New York City for two reasons.
The first is that Medicaid spending in New York City is so high,
at $13.2 billion in FY 1997. The
second is that New York State requires New York City to fund a higher
share of its Medicaid expenditures than other parts of the state are
required to pay. This is because
the state only requires local governments to contribute 10 percent of
the cost of Medicaid for the elderly, who are spread across the state,
but 25 percent of the cost of Medicaid for the non-elderly poor, who
are concentrated in the city. In
the 1970s and early 1980s, when the elderly poor were also concentrated
in the city, no such distinction was made.
These two factors combined to push New York City’s required
contribution to New York State’s Medicaid program to $2.8 billion
in fiscal 1997. If the City had been required to contribute
the same percentage as the rest of the state (on average), it would
have saved $515 million. For
a spreadsheet of this data, click here.
CHART 1.10: 1997 CHARGES, UTILITY
REVENUES, AND OTHER REVENUES
Charges for services are important
component of local government revenues nationally.
New York City collected an above average
amount, as a share of its residents’ personal income, in charges
and utility (ie. transit, water and sewer) revenues.
This, however, was mostly because the City has a lot to charge
for. It runs the nation’s largest transit system,
is the city’s largest landlord (through the NYC (Public) Housing
Authority), and runs one of the city’s largest heath care systems,
the Health and Hospitals Corporation.
The Census Bureau also counts the entire Port Authority, with
its tolls, World Trade Center rents, and airport fees, as NYC local
government. As later sections
of this report will show, NYC is often reluctant to levy higher fees
for service in lieu of tax funding, as are the Downstate Suburbs and
New Jersey. In the rest of the
country, and also in Upstate New York, charges for everything from park
use to trash collection are an important source of local government
revenue. In the United States as a whole, in fact, charges,
utility revenues, and other revenues (which include fines such as parking
and traffic tickets) are collectively nearly as important as local taxes.
They equaled 3.8 percent of personal income, vs. 4.3 percent
for local taxes.
Sources:
1997 Census of Governments.
Income: Bureau of Economic Analysis.
See introduction for details.
New York’s state non-tax revenues
were above average as a share of personal income, but only because of
the substantial scope of its electric power utilities, and because most
of the state’s transit agencies are counted as state government
rather than local government.
New York State collected a below-average
amount in charges for services, as a share of its residents’ personal
incomes. Its “other revenues” were slightly
higher than the national average, but lower than in New Jersey. New York States’ utility revenues were
much higher than the national average because of the size of the New
York Power Authority, and because virtually all New York State’s
mass transit agencies outside New York City are counted as state government,
rather than local government. To
return to the revenues spreadsheet, click here.
CHART 1.11: NYC AND NY STATE TAXES,
ANNUAL SERIES
Sources:
1997 Census of Governments and related annual series. NYC data: Annual Report of
the NYC Comptroller. Income: Bureau of Economic Analysis.
While New York City’s taxes are
lower than they once were, they remain high, and have stopped going
down.
New York City’s local tax revenues
fell from a high of 9.5 percent of its residents’ personal income
in fiscal 1987 to 8.2 percent of income in fiscal 1999.
They remain well above the national average.
In this chart, NYC’s tax revenues are taken from the Annual Report of the NYC Comptroller, published by New York City,
the same source that the Governments Division of the U.S. Census Bureau
uses to collect data on the City. For
a spreadsheet of annual NYC and U.S. local tax data, click here.
Sources: 1997 Census of Governments and related annual
series. NYC data: Annual Report of the NYC Comptroller. Income: Bureau
of Economic Analysis.
New
York’s state taxes have leveled off at a rate below the national
average.
Since there are only 50 states, the Census
Bureau releases data for state governments before local government data
is available. Both in New York State and the in nation as
a whole, state taxes as a share of income were essentially unchanged
from FY 1997, which was covered by the census of governments, to fiscal
1999, which is covered by an annual series.
To return to the annual tax data spreadsheet, click here.
Section 1 Summary
-
New York State’s state and local taxes, as a share of personal
income, were the second highest in the nation, 28 percent above
the national average. Most
states fell within a narrow range between 10 and 13 percent of income. California and New Jersey, for example, were
right at the national average.
New York State, at 14.2 percent of income, Alaska, and Maine
were the only states over 13 percent.
-
While New York’s state taxes were below average, as a share
of the income of state residents, its local taxes were the highest
in the country. Over the
past 20 years, New York State bucked a national trend of having
a higher share of taxes collected at the state, rather than local
level. Only New Hampshire
collected a higher share of its state and local taxes at the local
level
-
The composition of New York’s taxes were disadvantageous to
businesses, especially new businesses without special tax breaks. Outside New York City, they were also disadvantageous
to the elderly, at least through 1997. In New York City, they were especially disadvantageous
to the self-employed.
-
The State of New York keeps its own taxes down, in part, by forcing
its local governments to raise their taxes, then provide “local
to state aid,” primarily for Medicaid.
Welfare is a local expenditure, with a local matching share
of financing as well, in New York State.
New York City received an above average amount of state aid,
as a share of its residents’ income, but only for welfare,
housing, and hospitals (via Medicaid).
Similarly, New York State received an above average share
of federal aid, but only for those same services.
Medicaid and welfare are state services, with little or no
local financing, in most states. While the state’s burden shifting hurts
New York City the most, other parts of the state, especially poor,
rural counties, are hurt as well.
-
In Upstate New York, as in much of the nation, charges for services
and other revenues are a major source of local government income. This is true in New York City as well, but
only because the City runs so many enterprises. Local government in the Downstate Suburbs and New Jersey, and New
York’s state government, collected less revenue than average
in charges for services. Charges
as a share of total spending are discussed on a category by category
basis elsewhere in the report.
To move on to Section 2, click here.
