One of the many legacies of New York’s Depression-era mayor, Fiorello La Guardia, is the belief that the city’s business community exists to pay for the ambitious social agendas of Gotham’s political leaders. Successive generations of mayors, City Council members, and commissioners have operated on that assumption, helping make New York one of the country’s most expensive and difficult places to do business.
Among the new taxes that La Guardia imposed in 1934 to finance a growing budget were a local sales tax and an unprecedented tax on gross receipts that firms had to pay for “the privilege of carrying on a business or practicing a profession in the City of New York.” The gross-receipts levy was especially unwelcome because it taxed not profits, which had evaporated for many firms during the Depression, but revenues. La Guardia originally called the tax “temporary,” but he continually renewed it and also added other business taxes, including the 1938 commercial-occupancy levy, which was a tax on business rents collected in addition to the city’s more traditional property taxes.
Neither the waning of the Depression nor the postwar economic boom halted the upward march of business taxes. Between 1945 and 1960, New York increased the “temporary” gross-receipts tax rate fivefold, even though, as the New York Times pointed out, it fell “most heavily precisely on those firms that do business on the smallest margin of profit.” City officials also showed a diabolical knack for dreaming up business levies that existed nowhere else, like the one imposed on vault space beneath streets (for which firms were already paying a licensing fee). And the city applied its sales tax to more and more products that went untaxed elsewhere, like clothing, so that, by the early 1960s, the Times was reporting that merchants on the fringes of the outer boroughs could no longer compete with firms outside the city and were going out of business in droves.
Seeking a national reputation for expanding welfare programs, Mayor John Lindsay matched La Guardia’s taxing ardor. He replaced the hated gross-receipts tax with a business tax on profits, which collected some $58 million more from firms each year than its predecessor had; introduced a city income tax that fell heavily on successful small-business owners; and instituted a tax on unincorporated businesses. Over time, he enlarged many of these levies—extending the unincorporated-business tax to the self-employed, expanding the city’s sales tax to restaurant meals, and upping the vault tax. A 1976 commission appointed by Lindsay’s successor, Abe Beame, estimated that the city lost nearly 100,000 jobs in a decade because of the steep business-profits tax alone. The commission also noted that “the confidence of businessmen in government had been shaken” by the decade of taxation.
But taxes don’t tell the full story of government’s hostile attitude toward businesses in that era. The 1950s and 1960s were also the beginning of the age of urban renewal, an era of big-government-designed building that continues to this day. Starting in the late 1950s, the city seized and tore down thousands of small businesses, from Italian bakeries to kosher meat markets to Puerto Rican bodegas. In East Harlem alone, authorities took possession of and then razed 1,000 small businesses to make way for a dozen public-housing developments. In a 20-block zone on the West Side, government ejected 250 small firms to build public housing. Hundreds of small-office tenants and some 300 merchants, including a cluster of electronics stores known as Radio Row, were displaced to build the World Trade Center.
In most cases, these firms received little compensation, and the majority simply disappeared. The effort turned many business owners into activists who marched on City Hall to protest their treatment, usually to little avail. Life changed dramatically for owners like Ramon Caro, who operated a restaurant in East Harlem until the government seized it. Tracked down by New York Times reporters in 1957, Caro was working as a dishwasher and still awaiting compensation, though the amount awarded to him wouldn’t be enough to open a new restaurant. Others with the wherewithal to relocate often faced steep drops in business. As Harry Schichman, who ran a repair shop in East Harlem that he relocated in 1957, told the Times after the move, “Carfare I don’t even make.”
By the 1970s, Lindsay’s profligacy had driven New York to the brink of financial ruin and prompted a sharp cutback of not only social programs but also key city services, including police and firefighting. Press reports described crime-ridden Jamaica, Queens, once a bustling shopping district, as “totally deteriorating.” When a blackout struck on July 13, 1977, police and fire personnel sat helplessly by as looters pillaged 134 stores and set 44 on fire in Bushwick, Brooklyn. It would be decades before the commercial district recovered.
What saved New York’s finances was a late-1970s upturn on Wall Street, producing an economic revival centered on the financial industry, where profits and pay soared. But the Wall Street–led boom also helped foster the notion that New York businesses made so much money that they could afford a much heavier government burden. And so when tax revenues fell in the late 1980s, the result of a Wall Street slump, both the city and the state were quick to respond with new taxes on businesses to make up for the budget shortfalls. The state raised taxes on so-called Subchapter S corporations (the favored way of incorporating for many small firms), and the city enacted a substantial increase in property taxes for commercial establishments.
The early 1990s also saw an uptick in business regulations, especially in rising fines and fees. In 1992, the city’s Consumer Affairs Department, led by former Ralph Nader associate Mark Green, boosted by 20 percent the revenues it had collected from fines in fiscal year 1991 and hiked fees for dozens of different business licenses. Firms that failed to obtain the proper license or that labeled items incorrectly were subject to sharply increased fines. Meanwhile, the Department of Sanitation hit firms with a staggering 236,000 violations that year, many for the city’s controversial 18-inch rule, which requires merchants to keep not only their sidewalks litter-free, but also the street up to 18 inches from the curb. And the health department doubled fines for first-time restaurant violators and eliminated warning citations, slapping $1,000 tickets on owners for initial violations. “It was pure harassment in many cases for the sake of raising revenues,” recalls City Council Minority Leader James Oddo.
And yet that era pales in comparison with what has transpired in the past few years. Is it any wonder the city’s small businesses are angry?
Increasingly aggressive city inspectors now linger in those stores for hours, —waiting for their bribe
It’s not just small business and it’s not just NYC, it’s the whole metro area (includes northern NJ and lower CT)...I coun’t the days that I can move out and I was born and raised on the Island of Manhattan...
This is the result of liberalism...
“Michael Bloomberg and the City Council have agreed to set up a commission...”
I stopped there. These idiots solution to too much government: MORE government.
If you live in NYC and have a small business, MOVE! Ditto for you in CA. You’re welcome in Texas (and Nevada).
New York City is about to get even more anti small business. When the dust clears next month the City will be TOTALLY controlled by The Working Familes Party which is the political arm of ACORN. The state headquaters for both ACORN and WFP is in the same office in Brooklyn.
In January the WFP controlled City Council WILL pass a City law demanding that even single employee small businesses give at least 5 paid sick days to their employees.
This will collapse thousands of small businesses and force the workers and some of the small business owners to work at union controlled companies. WAL-MART yes our “good friends at WALMART WILL not MIGHT but WILL cave in go union and the WFP will let them into NYC. The SEIU or some other union thug outfit will pick up thousands of new members and not have to do a thing to get them OR for them either.
ping
Obama wants to replicate the NYC model on a national scale.
Small business owners have had enough. They are tired of working for the government and not being paid. They are tired of having the government be a silent business partner who tells them what to do and doesn’t do any work to further the business. They are tired of the government putting its hand out and taking profits even before they are mode. Business license taxes. Sales taxes. Inventory taxes. Taxes on equipment (desks, chairs, signs, computers, cash registers, etc). Payroll taxes. “unemployment” taxes.
They tax you on the things you sell when you sell them (sales taxes). They tax you on the things you sell before they are sold (inventory taxes). They tax you on the equipment that you use to run your business. Then if you make a profit after all that, they tax you on the profit.
It’s really about government controlling the means of production. See communist manifesto.
BFL