Paul Krugman, “Sheiks and Princelings and Beeznessmen, Oh My”
A few weeks after we’re told that the “unimproved land tax” is economists’ favorite tax, Paul Krugman writes:
New York is experiencing a similar transformation [as London] into a global rentier city … It’s going to present an interesting conundrum for Bill de Blasio … he’d be governing a city where a lot of the wealth was generated somewhere else and resides in NYC for the amenities (which include the ability to rub shoulders with other rentiers.) So he needs to milk these people, but not too hard.
I guess it’s better than being Detroit.
First of all it doesn’t matter if NYC becomes a city for rentiers from the world over or just Newark. The concern is that as non-residents they benefit from the city’s services without paying much in taxes of any kind. However, as the Times article Krugman links to correctly points out, the city’s tax laws are authorized by the state government, so the mayor wouldn’t be able to tax the global elite even if the council unanimously supported it.
Since the global elite are also immune to income taxes, what’s necessary is reform of the state’s byzantine property tax system so that people who can fly into town and live in the Plaza Hotel nearly tax free or plop down $90 million for a penthouse in One57 and not even live there all year pay their fair share.
Moreover, Krugman’s implicit fear of the consequences of “milking these people too hard” is uncharacteristically illiberal of him. Hyper-wealthy people who don’t live in the city year-round but take up space nonetheless do little to benefit the city. There’s no way their consumption spending on “amenities” creates enough jobs to offset the services they consume, and their presence drives up land prices, making the city less affordable for people who live and work in it, including relatively high-paid professionals who are encouraged to leave town due to higher income taxes.
It’s not Detroit; think Fritz Lang’s Metropolis only above-ground and with commutes.