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Strong city economy fails to create many jobs
Tax structure change could help attract, keep small business
By Elizabeth Macbride Published on February 06, 2006
More than two years into an economic recovery, New York City's job machine is operating in low gear. Without a kick, it may get stuck there.
Preliminary numbers show that the city netted only 43,000 jobs in 2004 and 2005 combined, a performance that lags the nation's and is less robust than has been seen in previous recoveries. At this rate, the city may not regain the 237,000 jobs it lost in the last recession before the business cycle turns again.
Sluggish growth on Wall Street and in professional and business services is particularly troubling, because those two sectors have been the city's strengths.
Defeatist attitude
The street has added 9,500 jobs over the past two years--more than some economists expected--but the securities industry remains 25,000 jobs off its 2000 peak of 195,000.
The professional and business services sector, which includes operations like law and consulting firms, has grown 2% in New York, versus 6% nationally. The sector is expanding, just not in the city.
Few are sounding alarms, partly because the economy seems so vigorous in other ways. Though the hope is that things pick up this year, most predictions are for continued slow growth: 35,000 to 50,000 jobs added in 2006. Others may be lulled into a false sense of security about the future, because Wall Street's high profits are boosting the city's coffers.
Some may simply be resigning themselves.
"There is this notion--a defeatist idea, like `politics here will never change'--that the days when the city's economy would grow faster than the nation's are over, that we're in a cycle of always lagging the nation," says Steve Malanga, a senior fellow at the Manhattan Institute.
Slow growth isn't an immutable law but a direct consequence of public policies that make New York unattractive to business. The city is so taxed and regulated that even companies in its most important segments are reluctant to put more jobs here. Three fundamental, if difficult, steps could reverse that situation: cut taxes, stop strangling small business and support federal policies to spur the financial sector.
New York City is a world-class location, but its business-tax climate is awful. The state ranks No. 49 in the nation, according to the Tax Foundation. The city adds insult to injury by imposing its own income tax.
"New York City's advantages have their limits," says Bill Ahern at the foundation. "The better the tax climate ... the better the chance the jobs will be created."
Lay off small business
Relief is sorely needed. After raising taxes to plug budget gaps in previous years, the Bloomberg administration is now considering some tax reductions. In choosing which to cut, it should play to New York's strength as a headquarters for service businesses. The city could effectively lower income taxes for companies with operations in other states if it calculated rates more on the point of sale rather than on the location of property and employees.
The city also needs to stop hassling small businesses by retreating from its practice of raising revenue through fines.
No one knows which sector of the economy will take off in an expansion, but one certainty is that small businesses will create many of the jobs. Stifling those enterprises, as the Bloomberg administration does, means thwarting growth.
Between fiscal 2002 and fiscal 2005, the fines collected by the Environmental Control Board--a funnel for many business fines--rose 30%, to about $64 million. Complaints of draconian enforcement are legion.
Robert Bookman, an attorney who represents small businesses, cites a recent case in which a corner store was fined $4,000 for a first-time incident of selling cigarettes to a minor, even after the offending employee had been fired.
"The golden goose can be killed," Mr. Bookman says. "Entrepreneurs used to think about establishing one place and then expanding to a second. They're not doing that so much anymore."
Changing practices becomes even more of a no-brainer when administrative costs are considered. A 2003 study by the Independent Budget Office found that, with the exception of parking violations, the city spends $2.09 on enforcement for every $1 that it collects.
Finally, the city's congressional delegation could help Wall Street grow. Instead, it is following the Democratic Party line by opposing efforts to make permanent the 2003 tax cuts that lowered the rate on dividends and capital gains to 15%. Any increase is sure to hurt the securities industry.
Comments? cnyb@crain.com
Strong city economy fails to create many jobs
Tax structure change could help attract, keep small business
By Elizabeth Macbride Published on February 06, 2006
More than two years into an economic recovery, New York City's job machine is operating in low gear. Without a kick, it may get stuck there.
Preliminary numbers show that the city netted only 43,000 jobs in 2004 and 2005 combined, a performance that lags the nation's and is less robust than has been seen in previous recoveries. At this rate, the city may not regain the 237,000 jobs it lost in the last recession before the business cycle turns again.
Sluggish growth on Wall Street and in professional and business services is particularly troubling, because those two sectors have been the city's strengths.
Defeatist attitude
The street has added 9,500 jobs over the past two years--more than some economists expected--but the securities industry remains 25,000 jobs off its 2000 peak of 195,000.
The professional and business services sector, which includes operations like law and consulting firms, has grown 2% in New York, versus 6% nationally. The sector is expanding, just not in the city.
Few are sounding alarms, partly because the economy seems so vigorous in other ways. Though the hope is that things pick up this year, most predictions are for continued slow growth: 35,000 to 50,000 jobs added in 2006. Others may be lulled into a false sense of security about the future, because Wall Street's high profits are boosting the city's coffers.
Some may simply be resigning themselves.
"There is this notion--a defeatist idea, like `politics here will never change'--that the days when the city's economy would grow faster than the nation's are over, that we're in a cycle of always lagging the nation," says Steve Malanga, a senior fellow at the Manhattan Institute.
Slow growth isn't an immutable law but a direct consequence of public policies that make New York unattractive to business. The city is so taxed and regulated that even companies in its most important segments are reluctant to put more jobs here. Three fundamental, if difficult, steps could reverse that situation: cut taxes, stop strangling small business and support federal policies to spur the financial sector.
New York City is a world-class location, but its business-tax climate is awful. The state ranks No. 49 in the nation, according to the Tax Foundation. The city adds insult to injury by imposing its own income tax.
"New York City's advantages have their limits," says Bill Ahern at the foundation. "The better the tax climate ... the better the chance the jobs will be created."
Lay off small business
Relief is sorely needed. After raising taxes to plug budget gaps in previous years, the Bloomberg administration is now considering some tax reductions. In choosing which to cut, it should play to New York's strength as a headquarters for service businesses. The city could effectively lower income taxes for companies with operations in other states if it calculated rates more on the point of sale rather than on the location of property and employees.
The city also needs to stop hassling small businesses by retreating from its practice of raising revenue through fines.
No one knows which sector of the economy will take off in an expansion, but one certainty is that small businesses will create many of the jobs. Stifling those enterprises, as the Bloomberg administration does, means thwarting growth.
Between fiscal 2002 and fiscal 2005, the fines collected by the Environmental Control Board--a funnel for many business fines--rose 30%, to about $64 million. Complaints of draconian enforcement are legion.
Robert Bookman, an attorney who represents small businesses, cites a recent case in which a corner store was fined $4,000 for a first-time incident of selling cigarettes to a minor, even after the offending employee had been fired.
"The golden goose can be killed," Mr. Bookman says. "Entrepreneurs used to think about establishing one place and then expanding to a second. They're not doing that so much anymore."
Changing practices becomes even more of a no-brainer when administrative costs are considered. A 2003 study by the Independent Budget Office found that, with the exception of parking violations, the city spends $2.09 on enforcement for every $1 that it collects.
Finally, the city's congressional delegation could help Wall Street grow. Instead, it is following the Democratic Party line by opposing efforts to make permanent the 2003 tax cuts that lowered the rate on dividends and capital gains to 15%. Any increase is sure to hurt the securities industry.
Comments? cnyb@crain.com
posted by Jones Lang LaSalle NJ News Blog at 10:34 AM
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