N.Y. Mayor Wants New Tax on the Rich to Fund Transit Improvements -- Update

New York City Mayor Bill de Blasio is proposing a tax on the city's wealthiest residents to fund long-term improvements to the subway and bus systems.

The proposed income tax surcharge would raise $695 million next year and $820 million in 2022, the mayor's spokesman said. It would increase the city's highest income-tax rate to 4.4% from 3.9% for individuals with annual incomes over $500,000 and married couples making more than $1 million.

"Rather than sending the bill to working families and subway and bus riders already feeling the pressure of rising fares and bad service, we are asking the wealthiest in our city to chip in a little extra to help move or transit system into the 21st century," Mr. de Blasio said in a written statement.

New York City is among the highest-taxed cities in the U.S. The combined federal, state and local income-tax rate for individual filers making $1 million or more in New York City is 48.25% when taking into account deductions, said E.J. McMahon, founder and research director of the Empire Center for Public Policy, a think tank based in Albany, N.Y. That rate, which doesn't include health care or Social Security taxes, would increase to about 48.57% under Mr. de Blasio's proposal.

The proposed New York City tax increase comes at a time when federal officials are considering eliminating state and local deductions.

"That is disproportionately important to New York state because we have a high number of high-income people who pay high state and local income taxes," Mr. McMahon said.

New York City's highest combined income-tax rate for state and local taxes was 12.7% in 2016, second only in the U.S. to California, according to an Empire Center report.

Metropolitan Transportation Authority Chairman Joseph Lhota said Mr. de Blasio's proposal doesn't solve the agency's short-term funding emergency. The MTA, which runs the city's subway system, last month released a plan to improve reliability and make repairs at a cost of $836 million in the first year.

"The Mayor should partner with us and match the state funding now so we can turn the trains around," Mr. Lhota said in a written statement. "There's no question we need a long-term funding stream, but emergency train repairs can't wait on what the state legislature may or may not do next year."

Changes to the city's tax structure require approval by the state Legislature.

Details of the proposal were first reported by the New York Times.

New York Gov. Andrew Cuomo echoed Mr. Lhota's comments calling on the city to match state funding for the MTA's overhaul plan.

"We need two things: immediate action, and a long-term modernization plan," he said in a written statement. "One without the other fails the people of the city."

An official with Mr. Cuomo's administration said the governor's office is also looking at congestion pricing, including fees on for-hire vehicles, as a way of raising revenue to pay for MTA improvements. The governor's office is looking at ways to test and introduce congestion pricing and may introduce a proposal as part of Mr. Cuomo's state of the state address in January, the official said.

Messrs. Cuomo and de Blasio, both Democrats, have a strained relationship and are at odds over who should shoulder the bulk of the cost for much-needed subway repairs.

Mr. de Blasio's proposed tax would affect about 32,000 tax filers, which city officials said represent fewer than 1% of all filers in New York City. Most of the revenue would be spent on subway and bus upgrades, but $250 million would be earmarked for half-priced MetroCards for low-income riders. An estimated 800,000 people at or below the federal poverty level would be eligible for the reduced fare, according to the mayor's office.

John Raskin, executive director of the transit-advocacy group the Riders Alliance, said in a statement he supports the mayor's proposal.

"A truly successful transit system is one that's reliable, comprehensive and everyone can afford to ride," he said. "It's time to end a system where low-income New Yorkers have to skip meals, beg for swipes or even jump turnstiles in order to get to work or school."

City and state officials have come under increasing pressure in recent months to fix New York City's subway system, which is more than 100 years old and strained by increasing ridership and years of underinvestment in repairs and maintenance. Mr. de Blasio will hold an event Monday to formally announce his proposal.

Write to Kate King at Kate.King@wsj.com

(END) Dow Jones Newswires

August 06, 2017 17:30 ET (21:30 GMT)