Revenue Implications of New York City's Tax System

In this issue of Second District Highlights, a key source of instability in New York City's budget is examined: its tax revenues. It is found that the city's tax system of the 1970s - one dominated by property taxes - over the years has become more dependent on personal and corporate income taxes. This shift has tied the city to a less stable and more cyclically sensitive tax base, and has exacerbated the city's recent revenue shortfalls. A more variable tax base places considerable challenges before city officials because expenditures - financed in large part by tax revenues - are difficult to reduce in the short run. Accordingly, a range of policy options that city officials could consider to address these challenges is also described, some of which would require legislative changes.