Static, Dynamic, and Other Fairy Tales from New York City

Zohran Mamdani’s latest fiscal sales pitch rests on a familiar political miracle: tax the rich, tax big business, tax a few luxury transactions, and the money will appear as obediently as my cat Charlie at dinnertime. 

The Mayor says that unless the city and state governments enact his sweeping tax plan called Path One, he will be forced to enact a more draconian Path Two, a 9.5 percent property-tax increase that would hit more than 3 million residential units and over 100,000 commercial buildings.  That is less a policy option than a budget memo written with a revolver on the desk. 

Now, on a static model, this all looks delightfully tidy.  Mamdani’s Path One, as reported March 6, includes about $3.0 billion from a two-point income-tax increase on filers earning over $1 million, about $1.75 billion from narrower corporate and unincorporated business tax changes, about $700 million from trimming the city’s pass-through entity tax credit, about $1.2 billion from new or expanded taxes on pricey real estate, and about $300 million from ending the sales-tax exemption on gold bars and other precious metals.  Add the pile together and you get roughly $6.95 billion a year.  On paper, that is the sort of number that causes politicians to speak in soft, reverent tones about “shared prosperity,” while taxpayers consider taking up drinking before lunch. 

But a dynamic model is what happens when we admit, reluctantly, that taxpayers are not decorative turnips with deep roots.  Dynamic analysis asks how policy changes affect economic behavior, employment, income, output, prices, investment, and therefore the actual tax haul.  In other words, it does not merely ask, “What is the tax rate?” It asks, “What will people do when you change it?” The Tax Policy Center explains that dynamic analysis accounts for those broader macroeconomic effects, and that those feedback effects can either soften or worsen the budget impact of a proposal.  So, the difference between static and dynamic is the difference between counting the fish in the pond and asking whether the fish can swim away. 

A great example is the $300 million that Mamdani hopes to raise from the sale of gold.  It is hard to imagine an investor who doesn’t already know that gold is available to purchase everywhere.  New York City knows this, and says that if you purchase gold someplace else, when you bring it into the city, you will have to pay that tax.  Unless they inspect the baggage of everyone entering the metropolis….

Let’s take the millionaire tax next.  Static scoring treats the tax base (otherwise known as people) as though it were bolted to the pavement.  Dynamic scoring asks whether some of those high earners will rearrange compensation, realize income in different years, move certain activities, change residency, or pay clever people in expensive suits to make taxable income appear less taxable.  That matters in New York because the tax base is already unusually top-heavy.  The Citizens Budget Commission (CBC) notes that in 2023, filers earning over $1 million paid 37 percent of New York City’s personal income taxes and that New York City residents already face a 14.8% combined top marginal personal income tax rate.  CBC also says Mamdani’s proposed two-point increase would push that to 16.8%.  When that much of the city’s tax revenue rests on so few shoulders, you do not need a full-blown stampede to shake the budget foundations; a brisk, offended jog will do.

Then come the business taxes, which in campaign rhetoric are always aimed at “the most profitable corporations,” a phrase designed to make the target sound like a dragon sleeping on a mattress of gold.  In practice, the latest plan would raise city corporate taxes by 1.8 percentage points for finance firms, 1.77 points for other corporations, and 0.4 points for large, unincorporated businesses, while also cutting back the PTET credit to 75 cents on the dollar.  Dynamic analysis here asks whether firms absorb the hit, pass it on in prices, reduce hiring, delay expansion, shift activity elsewhere, or simply get extremely creative with the legal geography of profits.  And because the package also leans on taxes tied to luxury property and cash real-estate deals, dynamic scoring would ask the obvious rude question: what happens when fewer people decide to buy the penthouse quite so urgently?

CBC argues that New York’s tax burden is already the nation’s heaviest, that the state’s share of the nation’s millionaires fell from 12.7 percent to 8.7 percent between 2010 and 2022, and that the number of publicly traded company headquarters in New York shrank between 2020 and 2025 while Texas and Florida gained.  That does not prove that every additional tax increase causes a U-Haul parade at dawn, but it does suggest that competitiveness is not an imaginary concept invented by hedge-fund lobbyists while they sipped champagne and ate canapés. 

If Mamdani’s Path One tax plan were passed, New York City’s business taxes would be 8.73% higher than New Jersey’s, 14.73% higher than Florida’s, and 19.48% higher than the business tax in Texas.  To put that in dollars and (common) sense, if Mamdani is successful in raising business taxes, J. P. Morgan can save $14 billion by moving to Fort Worth.  And that’s each and every year.

So what would a plain-English dynamic model look like? Something like this: the static total is about $6.95 billion, because that is what you get when you assume the tax base salutes smartly and remains where it is told.  But public documents I found list those revenue claims as straightforward amounts; they do not provide a published macroeconomic feedback score.  So, the next step is necessarily an illustration rather than revealed scripture from City Hall. 

Suppose the behavioral and economic effects of the tax increase shave 10 percent off the static forecast.  That leaves a shortfall of about $740 million.  Suppose the haircut is a more noticeable 17 percent.  Then you are at about $1.25 billion.  Suppose the reaction is fairly strong and knocks off 29 percent.  Then the haul falls to about $2 billion.  Same taxes, same press conference, same righteous language, but very different money. 

Painfully, New York Mayor Mamdani is learning that proposing lavish new government programs is the easy part; prying the money loose to fund them is where the parade runs into the brick wall.  Remember the promised government grocery stores?  While they are still in the planning stage, the mayor’s latest proposals are more than $10 million a year more expensive.

All of this reminds me of an old joke.  A politician dies and arrives at the Pearly Gates. St. Peter tells him that, by special arrangement, he may spend one day in Heaven and one day in Hell before deciding where he wants to spend eternity.

First, he visits Heaven. It is lovely enough: soft music, puffy clouds, pleasant people in flowing robes, and an endless supply of calm conversation.  Nice, certainly, though a bit quiet for his taste.

The next day, he is taken down to Hell. To his astonishment, it is magnificent.  The sun is shining, the fairways are perfect, and all his old political friends are there, laughing, slapping him on the back, and calling him by his first name.  They spend the morning playing golf, the afternoon drinking excellent whiskey, and the evening at a splendid banquet with steak, lobster, champagne, and a cabaret floor show.  The devil himself is charming, witty, and a magnificent host.

The following day, the politician is returned to Heaven and asked for his choice.  "Well," he says, "Heaven is pleasant, of course.  But Hell is clearly more suited to my temperament.  I choose Hell."

So down he goes.

This time, when the doors open, he finds not green fairways and fine liquor, but a blasted wasteland of smoke, fire, filth, shrieking, and misery. His friends are nowhere to be seen. Demons are whipping the damned, the air stinks of sulfur, and the banquet appears to have been replaced by something boiling in a dented bucket.

The politician stares at the devil in outrage. "What happened?  Yesterday this place was a country club.  Today it looks like Newark during a sanitation strike."

The devil smiles.  "Yesterday," he says, "we were campaigning. Today, you voted."