The New York Times
New York City will see a sharp drop in personal income tax collections this year, surprising city officials who now warn of a possible end to the nearly decade-long boom that accompanied Wall Street’s gains.
Mayor Bill de Blasio said on Thursday that the city projects that it will receive $935 million less in income tax revenue than the previous year — echoing an even larger shortfall in New York State’s budget.
State and city officials suggest several reasons for the decline, but most seem linked to Wall Street, with the stock market’s volatility at the end of 2018 having a ripple effect on municipal budgets, as well as to changes related to the 2017 Republican federal tax overhaul. That includes a short-term boom in tax revenue at the end of 2017 as some residents rushed to pay state, local and property taxes ahead of the new federal law.
The gaps also have prompted a deeper, and perhaps more troubling, question: Is this the new normal?
“If this is actually a change in taxpayer behavior, long-term, and not a blip or an overcorrection,” said David J. Friedfel, the director of state studies for the Citizens Budget Commission, “then this is the new base.”
The recent market drop, by coming late in the year, was particularly well-timed for investors looking to take advantage of investment losses to offset gains elsewhere in their portfolios. By taking those losses, investors would trim their overall tax burden, reducing tax revenue sent to the state and city.
“New York has a lot of high earners and high net worth individuals who may have, at the end of the year, chosen to take capital losses,” said Jared Walczak, a senior policy analyst at the Tax Foundation, a right-leaning think tank. “That’s going to be a much bigger hit to New York than to a typical state.”
Other states that depend heavily on high-income taxpayers for their revenues, such as California and Connecticut, also saw big drops in revenue late in 2018, according to Lucy Dadayan of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.