New York’s High-Tax Trap

The city’s lagging economic performance raises questions about Zohran Mamdani’s push for even higher rates.

Courtesy Aaron Burson/Unsplash

Protesters were arrested last week after occupying Governor Kathy Hochul’s Manhattan office to demand higher taxes on New York’s wealthy. Their words echo New York City Mayor Zohran Mamdani’s push for new levies on high earners. The shared message: the rich can afford to pay more.

What that message overlooks is that New York already taxes heavily—not just millionaires, but ordinary workers as well. Mamdani’s proposed tax increases are thus best understood not as a bold new progressive experiment, but as a doubling down on a model that’s already imposing real costs on the city and its residents.

Although New York is still rich and dynamic, its recent economic performance has lagged behind that of other major cities across the country. The New York-Newark-Jersey City metro area posted just 9.4 percent employment growth over the last ten years and 4.7 percent over the last five, according to the U.S. Bureau of Labor Statistics. By comparison, Dallas-Fort Worth grew roughly 27 percent over the past decade, Nashville about 25 percent, Raleigh roughly 28 percent, Austin more than 30 percent, and Atlanta nearly 17 percent.

Nor is New York’s middle-class income advantage what it once was. Several lower-tax metros now match or exceed the New York region on median household income, including Raleigh and Austin; Dallas is roughly at par. New York remains enormously wealthy at the top. But for ordinary households, the gap with faster-growing rivals has narrowed considerably.

Taxes are not the sole explanation for these differences. Housing costs, regulation, crime perceptions, transit quality, remote work, and broader governance all matter. But taxes are among the levers policymakers can most easily pull, and a substantial body of economic research finds that high local taxes on business activity, labor income, and mobile capital can reduce employment, discourage investment, and slow growth.

Cities are open economies: firms can expand elsewhere, workers can relocate, and capital can seek higher returns. Even when businesses remain, higher taxes can still mean smaller expansions, fewer hires, and less investment than would otherwise occur.

New York’s own experience is consistent with these findings. Past research led by Andrew Haughwout of the Federal Reserve Bank of New York examined several major American cities—including New York City—and found that higher local income and wage taxes had statistically significant negative effects on employment. The researchers estimate that New York’s cumulative income-tax increases between the 1970s and 1990s reduced local employment by roughly 490,000 jobs, partially offset by about 160,000 jobs recovered after the Giuliani-era tax cuts, resulting in a net tax-induced decline of approximately 330,000 jobs.

Subsequent research has reinforced that conclusion. Economists Alexander Ljungqvist and Michael Smolyansky found that a one percentage point increase in corporate tax rates reduces employment by 0.3 to 0.5 percent and wage income by 0.3 to 0.6 percent—meaning that in a metropolitan economy with $100 billion in annual wage income, workers would earn roughly $300 million to $600 million less each year. Juan Carlos Suárez Serrato and Owen Zidar also showed that workers and landowners together bear roughly 55 to 60 percent of the burden of corporate taxation through lower wages, reduced employment, and lower returns to local property.

Defenders of higher taxes often prefer to shift the debate to whether millionaires flee in response to those taxes. That question is familiar and contested. But even setting it aside, the more important point is that the real losers from high business and income taxes are often ordinary workers, who disproportionately bear the costs through fewer job openings and weaker wage growth.

Those risks should loom large in today’s debate, because New York already imposes an unusually heavy burden on productive activity.

According to the Citizens Budget Commission, businesses in New York City are subject to a 17.44 percent combined corporate tax rate once state, city, and regional levies are included—the highest in the nation. By comparison, the equivalent rate is 11.5 percent in New Jersey. High-income city residents face a 14.776 percent combined state-local top marginal income tax rate, exceeding California’s 13.3 percent. And New York State and its localities collect the highest taxes per capita in America.

Which means that Mamdani is proposing to raise taxes on top of a structure that’s already exceptionally high on a national basis.

Supporters may argue that New York’s dense labor markets, global prestige, and network effects allow it to shrug off burdens that would cripple lesser cities. Yet while New York’s strengths are indeed real, they don’t transcend the laws of economics.

The costs of high taxes in a city like New York rarely appear as a sudden collapse. They are more often less visible: fewer new firms, fewer expansions, fewer jobs, and more businesses or households deciding that the next move should happen elsewhere.

The question is not whether New York can survive high taxes, but whether it can thrive as fully as it should while imposing them. By that standard, the city’s recent record is warning enough. Mamdani’s tax plan, in this sense, is less a radical break than a wager that a high-tax regime already producing poor results will somehow deliver better ones.