Mike Bloomberg: Supply-Sider?

Via the New York Sun comes this, regarding a proposal to make hedge funds and private equity firms pay local business income taxes on profits generated by investments in these firms. To quote the mayor, Michael Bloomberg, "We'll see in terms of less taxes that the companies pay and less income taxes from people who work in those companies." New York City gets an unbelivable windfall from the presence of financial firms in the city, and Mayor Bloomberg is not stupid enough to jeopardize it, especially heading into a possible recession, when firms might be more willing to ditch the high rent city for greener financial pastures. Good for him.

Even more interesting to me was this, a defense of tax avoidance:

Mr. Bloomberg said yesterday that people have a right to structure their affairs to minimize their tax bills, so long as they follow the law. "In fact, the law wants you to do that. That's how we use tax law to incentivize people," he said.

Of course, one would expect Nurse Bloomberg to defend using taxes to "incentivize", being so fond of meddling. Still, it's a bit heartening to see someone actually say that you don't have a moral obligation to fork over as much money as you have in your bank account.

I actually don't think that there would be a supply-side boost to cutting income taxes in the United States, at least in the short term. But for a locality, there might very well be. Participation constraints bind much more strongly on smaller government units like cities than they do on the nation.

But what do I know? I'm actually continually amazed at the resiliance of New York City's dominance in the financial sector. If you had asked me ten years ago, I would have said that internet communications would have meant a decrease in the importance of physical location in the service economy by now, but that hasn't been the case so far.

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