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Home Publications Blogs Beat the Press Does the Data Show that Having More Rich People in New York City Benefits the Poor?

Does the Data Show that Having More Rich People in New York City Benefits the Poor?

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Sunday, 29 September 2013 11:46

The New York Times told readers that Mayor Bloomberg is right, the data show that the poor have benefited by having more billionaires in the city. The basis for this assessment is that rich people pay a disproportionate share of the city's tax revenues. Therefore by having more rich people, the city has more tax revenue to help out poor people. 

The article even gives readers some basis for quantifying this gain. It tells readers that households with incomes of more than $10 million a year accounted for almost 20 percent of the city's income tax revenue last year. Since the city raised just under $8 billion in income taxes, this means that the rich paid a bit less than $1.6 billion to the city in income taxes.

By comparison, the article tells us that 46 percent of the people in the city have an income of less than 1.5 times the poverty level. With a population of 8.25 million, this implies that roughly 3.8 million people live near or below the poverty line. This means that if all the tax revenue from the wealthy was used to benefit the poor, as opposed to benefiting the wealthy by providing them services or general support for the city infrastructure and services, it would come to $420 per poor person per year.

However tax payments are not the only way that the rich would affect the well-being of the poor. Their demand for housing and other resources (e.g. building space devoted to restaurants, gyms, art galleries, etc) drives up the cost of real estate in New York City. As a result, rent costs the poor more than it would if there were fewer rich people in the city.

It's not easy to calculate what rents would be in the city if the number of rich people had not increased so much under Bloomberg, but they would almost certainly be considerably lower. According to the Bureau of Labor Statistics (BLS), since 2000 rents in the New York have risen by 40.7 percent in the New York metropolitan area compared to 36.2 percent in the country as a whole. The increase in rents in the city itself is almost certainly more than this number, since the BLS figure is for the whole metropolitan area.

The Census Bureau reports that the median rent for the city is $1,125 a month or $13,500 a year. If the presence of such a large number of rich people raised this figure by 10 percent, then rich people cost low and moderate income people $1,350 in higher rents. With an average of 2.7 people per housing unit, this is considerably more than the $1,130 they would get if all the income taxes raised from the rich were redistributed to the poor.

Of course the rich would impose costs on the poor in other ways as well. Because the price of real estate in general is higher due to their demand, all the stores in the city must pay higher rents because of the presence of so many rich people. These higher rents are passed on to low-income people in the price of their food and clothes and everything else they buy.  

If the NYT wanted to do a serious analysis of whether the poor in New York City benefit from having so many rich people in the city, then it would have to examine all the ways in which their presence has an impact on the well-being of the poor. Just looking at tax revenue collected from the rich is an incomplete and obviously biased way to make this assessment. 

 

Note: typos corrected.

 

Comments (8)Add Comment
Rent, Economic Rent and Crowding Out of Poor by Rich
written by Last Mover, September 29, 2013 3:47
As a result, rent costs the poor more than it would if there were fewer rich people in the city.


Economic rent has a lot to do with it. The assumption is the rich outbid the poor for a given amount of square feet and without the rich, the highest bids would be lower. In part however, it's about the collection of economic rent itself given the rational refusal by property owners to add or improve more square feet concurrent with higher prices paid by the rich.

If economic rent was taxed away such that lower prices reflected the market price necessary to cover true economic cost and no more, whether the rich would still crowd out the poor and cause them to pay more rent would require that the poor don't crowd out each other with the same result.

If not, that means the poor cannot even pay market price excluding economic rent and would require a subsidy, presumably which could be funded from taxes paid by property holders collecting prior economic rents now taxed, most of whom likely qualify as rich.

If economic rent was taxed, the rich would have less incentive to take over entire floors of dwellings in NYC and surrounding metro because all property owners would make more by investing more in expansion and improvement rather than sitting on property with rising prices just to collect economic rent in subsequent sales.

The rich could still command a lot of square feet but it would cost much more. On the front end the largesse would go into government coffers rather than to other rich property holders. On the back end the collection of economic rent through resale would be sharply reduced by taxes.

Over time, the poor would face the same nominal buy and sell prices as the rich, but they would be lower and offer more per square foot than before because the cost of providing it would not be taxed away like economic rent.

Of course this is not the kind of rent Mayor Bloomberg has in mind for tax and redistribution purposes, and never will.
...
written by AlanInAZ, September 29, 2013 7:03
The New York area has always been a difficult place or both the poor and middle class. I lived and worked in the NY metro area until the mid 80's and found it very difficult to advance financially. Salaries were about level with other parts of the country but rents and taxes were very high and I could not save enough to buy a house. My financial status turned around when I moved from the NY area. Colleagues who also relocated at that time commented that they regretted not moving earlier. Dean's assertion that the billionaires are making things worse for the poor seems a bit weak to me. They spend money and support the local economy that provides jobs for the less skilled. I doubt that the number of super rich (who live in a concentrated area in Manhattan) is large enough to impact the housing market throughout the metro area where most poor and middle class live. The restaurants, art galleries, theaters that Dean says is robbing space for housing is an essential part of the tourism economy. I am not a defender of the super rich but in this case I think Bloomberg may be more right than wrong.
Dean is right
written by Steve, September 29, 2013 8:38
The wealthy have crowded the upper middle class out of Manhattan. Lots of them have stupefying amounts of space (3 or 4,000 square feet, sometimes more) considering they are living in a crowded city). In term, the upper middle class pushes out the middle class in Brooklyn, who push into poor neighborhoods.. You get the picture. Creepy institutions like the Metropolitan Museum of Art (allowed to gobble up a big chunk of Central Park because it is supposedly free) "suggest" $25 admission (lawsuit is now pending). But I had another question. Just what percentage of income of NYC do the 10million+ crowd praised in the original article earn? I wonder if it is more than the 20% they pay. A few probably earned a billion last year, for starters.
bars
written by isomorphismes, September 30, 2013 12:08
OK, but the rich also spend money within NYC. I'm thinking in particular of expensive restaurants and bars (service jobs where the gratuity can be high).

As a baseline model imagine Manhattan + Brooklyn initially populated by people with equal incomes. Then insert 5,000 financial workers who bid up the prices of all the Manhattan real estate but also spend money in Manhattan food & drink establishments, thus creating job opportunities for those who were forced out to Brooklyn.
Dan Shaviro
written by Stuart Levine, September 30, 2013 2:12
Dean--Take a look at tax law professor Dan Shavio's take on much the same problem. Here: http://bit.ly/19hXzK1
...
written by Kat, September 30, 2013 8:15
Mr. Roberts writes "Many poor people are stuck in low wage jobs." (Thanks for clarifying that. I wasn't sure if these were the highly paid or low wage poor people we were talking about.)
So, his argument is that we need more rich people who contribute to the growth of... low wage jobs?
NYC Is Doomed
written by LSTB, September 30, 2013 8:32
Housing is too expensive. The hyper-rich and the rich have pushed the middle-income out of Manhattan, and the middle-income are pushing the poor into the outer boroughs as Steve commented.

The other problem is transit cost hikes. It costs $5.00 for a round-trip on the MTA. Since the poor and middle-income, whose job it is to keep the city functioning by serving the rich and hyper-rich, must spend more of their income (and time) on transit, the city will stagnate and decline. It will be a Georgist nightmare.

If someone wanted to remake Metropolis, instead of making the workers live underground, they should live in the distant outer boroughs.
Hazlett
written by medgeek, September 30, 2013 2:44
This reminds me of a slim paperback volume entitled "economics in one lesson" by Hazlett. The book starts with a story of a shopkeeper's window broken by a thrown brick. Bystanders say this is good, because the glazier will now have work (replacing the window) he would not otherwise have had. The fallacy, of course, is that the original shopkeeper must pay for the broken window and therefore has less to spend on other items. The "one lesson" is that one must consider all factors in analyzing and economic situation. New York Times editors would do well to learn this lesson and not consider just one factor (increased taxes) paid by the wealthy.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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