Remote Work, Not Taxes, Threatens Cities

Why That Threat has Peaked but Others Remain

Recently, NYC Mayoral Candidate Andrew Yang got asked about raising income taxes on the wealthiest New Yorkers. He opposed such a measure to close the city and state’s budget gap, worrying that New Yorkers will leave because of tax increases.

That’s not surprising. Yang himself left the city when the pandemic hit, moving up to his home in New Paltz. It’s a move that many other New Yorkers did and I can’t blame them. Of course, none of the others are running for Mayor…

Still, the question is legitimate. If everything you know and love about New York City is shut down and you can work remotely, why stay?

Between shutdowns and companies allowing you to work from home, one of those things is certainly temporary.

Thanks to the pace of vaccinations, New York City is opening up again. I just purchased my first Mets ticket of the season for an April ballgame. Kids are back in school. Broadway theaters are starting to have people back and restaurants are gearing up for another season of outdoor dining.

While those things are fun and exciting (well, maybe except for school), many argue that those things come at a cost—the monetary cost of living in NYC.

That’s why some oppose increasing taxes on the wealthiest New Yorkers—citing price elasticity theories. They argue that if New York City becomes too expensive, it will no longer be worth being here for some people who have to pay more taxes on a percentage basis than others.

That’s a very incomplete way to look at cost.

First off, taxes are but one aspect of cost—especially when income taxes aren’t affecting wealthy New Yorkers as much as their advocates would have you believe. The wealthy are more likely to own mortgaged real estate—so they get tax write-offs on their interest payments and real estate taxes that renters do not, padding their bottom line. Also, they’re already getting a Federal tax break on capital gains—a 1-2% increase brings them up to a lower overall tax burden than someone who is making 100% of their money from wages.

This theory also makes no sense because, regardless of whether there are tax increases or not, you’re still going to have places like Florida that provide little to no public infrastructure or services and therefore zero income tax. Forget about just not increasing taxes. Even if New York was to make cuts, these cuts are never going to make taxes zero. Florida is always going to be a cheaper place to live, regardless of a 1-2% tax shift either way.

The idea that someone would stay in NYC at 12% income tax premiums, but leave for 14%, while they could have zero state and local taxes makes no sense.

The other major factor in what it costs to live in NYC is the opportunity cost of physical space.

When you live in NYC, you give up space—since housing is more expensive here per square foot than Wyoming or New Paltz. Plus, the types of spaces you can live in here are different. It’s not like you can choose between a fully detached house in Manhattan versus one in Indiana.

If you have dreams of living in an actual house with a big backyard of your own, your options in New York City are somewhat limited. You could move to New York City’s suburbs, but that willingness is probably capped by your tolerance for a commute.

Remove that need for a commute and now you’ve got to ask why anyone is living in a daily commutable distance to work in New York at all. A house two to four hours away from NYC is far cheaper than just one hour out or even 30 minutes away to live in an apartment.

This ability to work from home isn’t something that is going to change. It’s a permanent shift. Many companies found that their employees worked just as productively at home—especially for those who had any childcare needs taken care of—and they’re happier not having a commute. In fact, some studies show that a 20-minute addition to your commute each way makes you just as miserable as a 19% pay cut.

I would argue that if you’ve dreamed of this backyard in the burbs life minus in-person co-workers and a commute, you are simply not going to live in any city at any tax structure.

You are gone and never coming back.

If you want to be able to not own a car at all, to walk to any number of great restaurants, to live in an ethnically diverse community, to whiteboard in person with your coworkers, see shows, hop the train to the Rockaways in the summer and grab drinks after work at cool places—then New Paltz isn’t going to be your scene.

So yes, we are going to see a shift—most likely of young and wealthy Manhattan families. In fact, we’ve seen it already, which is why rents have come down—and they’ll probably come down even further. New York City should be leaning into that.

Let’s become a city where younger people who want to be out and about in a city, and not in the suburbs, can thrive, enjoy our cultural institutions, and build their way up to some kind of real estate ownership when they’re ready for a family.

This means supporting our entertainment and cultural scenes—making local performance space less expensive and making public spaces easier to access. A huge threat to NYC is not that there won’t be any wealthy people left to support the arts—but that the artists can’t afford to be here.

Make NYC cheaper by making it easier to get around from the outer boroughs and across town—like adding more transportation improvements like the hugely successful 14th street busway that Andrew Yang opposes depending on who he’s talking to.

Instead of building more 2-3 bedroom luxury apartments in Manhattan, we should be shifting our housing stock to denser, smaller starter apartments like the walkup I first lived in after college on 83rd and East End. It was a one-bedroom I rented with 25% of my annual salary. The average New Yorker spends nearly a third of their income on housing today—which that number being higher the less you make.

After a few years, I bought a one-bedroom co-op apartment in Bay Ridge for roughly 2.3x my annual salary.

How many people can do that now?

That’s just as much an issue of what’s being built as much as the overall costs. There just aren’t as many starter apartments to rent or try to own anymore. So many of those far Upper East Side post-college walkups have been replaced by big luxury buildings.

That early purchase enabled me to save enough to buy something more suitable to grow a family in 14 years later, which isn’t surprising. Owners tend to net out at a third less or more in net housing costs after tax incentives.

So before you go down the road of thinking that income tax policy is the make or break factor for NYC’s tax base, let’s not oversimplify the effects of the pandemic on people’s work lives—or people’s preferences on the life they want to have and raise their kids in.

The hills I’ll die on are the following:

1) Miami, New York, and Mamaroneck, and Wyoming are not interchangeable living situations whose sole factor is cost. That’s just a ridiculous notion on its face because these are very different places and if you’re really completely indifferent between them, you might be a sociopath.

2) The average person thinks they’re paying too much in taxes but can’t tell you the actual percentage of it off the top of their head, nor the specific local component.

3) No matter how much you love New York City, you start cutting city services and the trash starts piling up or a homeless person pushes someone you know of onto a subway track because they’re not getting adequate care, you’re out. There’s no level of taxes that will make that version of NYC worth living in.

Fund the programs, fill the budget gap and make NYC the kind of place people want to be in—and have the will not to be threatened by wealthy people who are still here. These are the same people who didn’t want to save money by moving to Brooklyn because it was too far, or Queens because it’s wasn’t “cool enough”.

And now we’re worried they’re moving to Florida?