Wealthy New Yorkers Call De Blasio’s Tax Plan Offensive
When New York mayoral candidate Bill de Blasio first proposed taxing the rich so every child in the city could attend all-day preschool, it was October and he had support from fewer than 10 percent of Democrats in polls.
Now he leads the pack. And some of the wealthy New Yorkers who’d pay more under his plan say it bewilders and offends them.
“It shows lack of sensitivity to the city’s biggest revenue providers and job creators,” said Kathryn Wylde, president of the Partnership for New York City, a network of 200 chief executive officers, including co-Chairman Laurence Fink of BlackRock Inc. (BLK), the world’s biggest money manager.
Days before next week’s primary election, de Blasio, 52, has seized the lead decrying economic inequality. After 20 years of Republican and independent mayoral rule during which crime rates and welfare rolls plummeted and parks, stadiums, shopping, tourism and luxury apartments and office towers rose up, de Blasio speaks of a “Tale of Two Cities,” where almost half of New York residents are poor or struggling.
De Blasio’s new frontrunner status has renewed attention to his tax-the-rich idea, with opponents saying the plan hinges on unlikely support from the state legislature. Finance executives say it may hurt the local economy and drive out the wealthy, who already pay a disproportionate share of income levies.
“A bold proposal isn’t about putting forward something that’s never going to happen,” former city Comptroller William Thompson said last night during a televised debate among five of the seven Democratic mayoral candidates, the last one before the primary. De Blasio retorted: “The notion that we can’t convince the legislature -- that’s old thinking.”
De Blasio, elected in 2009 to the watchdog post of public advocate, says he’s concerned that the number of middle-income city residents is shrinking. The city's richest 1 percent took home 39 percent of all earnings in 2012, up from 12 percent in 1980, according to the Fiscal Policy Institute, a nonprofit research group in New York.
“Almost anyone with a self-perceived degree of affluence will be uncomfortable with de Blasio’s tax ideas,” said Michael Steinhardt, chairman of New York-based asset manager WisdomTree Investments Inc. (WETF) While growing inequality is troubling, Steinhardt said, “perhaps even more so is the thought that more government spending is the way out of our problems.”
E.E. “Buzzy” Geduld, who runs the hedge fund Cougar Capital LLC in the city and is a trustee of Manhattan’s Dalton School, where annual tuition tops $40,000, said de Blasio’s plan “is the most absurd thing I’ve ever heard” and “not a smart thing to do.”
De Blasio first presented his tax plan to a quiet audience attending his Oct. 4 speech to the Association for a Better New York, a real-estate developers’ civic group. He called on them, as some of the city’s wealthiest individuals, to provide about $532 million for universal all-day pre-kindergarten and after-hours middle-school programs.
About 20,000 of New York’s 68,000 four-year-olds get city-funded full-day pre-kindergarten classes, with 38,000 enrolled in three-hour programs and 10,000 in none. The added pre-K slots would cost roughly $342 million, de Blasio said.
Approximately a third of middle-schoolers participate in after-hours extracurricular programs, and to enroll the rest would cost about $190 million, according to de Blasio’s plan.
“We need a game-changer, and at a time when so many families are struggling, it’s right and fair that we tax the wealthiest New Yorkers to achieve it,” de Blasio said last week. “There is no investment that will prove more transformative for our kids.”
De Blasio’s plan would raise the marginal tax rate on incomes above $500,000 to 4.4 percent from almost 3.9 percent. For the 27,300 city taxpayers earning $500,000 to $1 million, the average increase would be $973 a year, according to the Independent Budget Office, a municipal agency.
For those making $1 million to $5 million, the average extra bite would rise to $7,793, the budget office said. At incomes of $5 million to $10 million, it would climb to $33,518, and for those earning more than $10 million, it would mean paying $182,893 more.
These high-earners already contribute more than 43 percent of the city’s income-tax revenue, Wylde said. New Yorkers also face top state tax rates of more than 6.8 percent for joint filers on income of more than $300,000 to about 8.8 percent on couples’ annual incomes that exceed $2 million.
“The business community asks whether city leaders will continue to foster a strong, vibrant economy or will they try to undertake huge social and economic changes, which really are the result of global and national forces, at the expense of city businesses and taxpayers,” she said.
The city should be cutting spending and taxes, said Peter Solomon, chairman of New York-based investment bank Peter J. Solomon Co. and a former Lehman Brothers Holdings Inc. vice chairman.
“Anybody who proposes raising taxes in the city of New York is barking up the wrong tree,” Solomon said.
George Soros, the billionaire hedge-fund pioneer and philanthropist, endorsed de Blasio last month, partly because of his tax-the-rich plan. Soros, 83, who resides and votes in Katonah, a suburb in Westchester County, donated $2,000 to de Blasio’s campaign, saying the proposal “is sound public policy and will have a powerful impact on reducing inequality.”
Former Citigroup Inc. Chairman Richard Parsons said that he’d “gladly pay higher income taxes if all of the increase went to fund early education.” At the same time, Parsons said, he harbors doubts about de Blasio’s appreciation of “the importance of the business community and more significantly, what it will take to keep business thriving.”
About 46 percent of four-person New York families had incomes of no more than about $46,000, or roughly 150 percent of the city’s poverty level in 2011, according to an April report from the Center for Economic Opportunity, an agency Mayor Michael Bloomberg created in 2006 to measure and develop programs for the poor. It said 21 percent lived below the poverty line of about $31,000 for a family of four in 2011.
The mayor, a billionaire, is founder and majority owner of Bloomberg News parent Bloomberg LP. He’s barred by law from seeking re-election after three four-year terms that began in January 2002.
From 2000 to 2010, the median income of the city’s eight wealthiest neighborhoods jumped 55 percent, according to the Fiscal Policy Institute. During the same period, median income fell 3 percent in middle-income areas and 0.2 percent in the poorest neighborhoods, the group said, citing U.S. Census data.
De Blasio first proposed his tax plan before he had formally announced his mayoral candidacy, when public opinion polls measured his support at 10 percent or less.
He seized the lead in three separate polls last week, and his edge climbed to 43 percent among likely Sept. 10 primary voters in a Quinnipiac University poll released yesterday.
Of de Blasio’s two closest opponents, Thompson had 20 percent and City Council Speaker Christine Quinn, 18 percent. Thompson, the party’s last nominee, came within 4.3 percentage points of denying Bloomberg a third term in 2009.
If no candidate gets 40 percent in the primary, the top two in each party will compete in an Oct. 1 runoff. Registered Democrats hold a 6-to-1 advantage over city Republicans, giving their nominee an advantage in the Nov. 5 general election.
Although de Blasio’s Democratic opponents have expressed agreement with the goal of providing universal all-day pre-kindergarten programs, they have attacked his proposal because it relies on lawmakers passing a tax increase.
Thompson, 60, has described it as a “fantasy plan” and a “tax in search of an idea.” The city would have to find the money on its own or seek state aid to make it happen, he said.
Quinn, 47, also opposed raising taxes and touts her record as the leader of the governing body that budgeted the existing 20,000 all-day kindergarten spots.
De Blasio gets little opposition on the desirability of expanding pre- and after-school programs.
Ben Bernanke, chairman of the Federal Reserve, endorsed the idea in a July 2012 speech, saying: “Economically speaking, early childhood programs are a good investment, with inflation-adjusted annual rates of return on the funds dedicated to these programs estimated to reach 10 percent or higher. Very few alternative investments can promise that kind of return.”