NCPA - National Center for Policy Analysis


May 12, 2005

A new study by the Federal Reserve Bank of Boston confirms New York state's taxes are by far the highest in the country and finds social needs don't explain the heavy tax burden.

The "tax effort" required of New York workers and businesses is 43 percent higher than the national average, according to the researchers, and far above any other state. The state with the second-highest tax effort, Connecticut, was only 19 percent above average.

Tax effort measures how much state and local governments in each state collect in taxes, compared with the revenue-generating capacity of the state's economy. Researchers found New York's tax effort is especially high in these areas:

  • New York's personal income taxes are the highest at 71 percent above the national average.
  • The state's corporate income taxes are 83 percent above the national average.
  • New York's property taxes are 48 percent above the national average.

Federal Reserve economists Robert Tannenwald and Nicholas Turner also calculated "fiscal need" in each state. That index includes measures such as the poverty rate, the proportion of residents who are school-aged, and the number of vehicle-miles traveled.

New York State's fiscal need was only 1 percent above the national average, Tannenwald and Turner found. After adjusting for need, state and local government spending in New York was at least 35 percent above average in such major areas as education, public welfare, health/hospitals, highways, and police/corrections, the economists concluded.

"New York State's high tax effort reflects in part its policy preferences, not just its fiscal need," says Tannenwald. He added that it's possible the study underestimates fiscal need in New York State because of special circumstances in New York City, but says he doubts the difference would be enough to materially affect the outcome of the study.

Source: Robert Ward, "Politics, Not Need, Drive New York's Tax-and-Spend Policies," Heartland Institute, April 2004; and Robert Tannenwald and Nicholas Turner, "Interstate Fiscal Disparity in Fiscal Year 1999," Federal Reserve Bank of Boston, December 2004.

For study test:


Browse more articles on Tax and Spending Issues