New York’s Precarious House of Cards: An Economy Built on Real Estate and the Wealthy Few

New York City’s budget is staggering in size. At $112.4 billion for Fiscal Year 2025, it is larger than the budgets of most American states and even many countries. This immense sum pays for the essentials that keep the city running: the largest public school system in the nation, the most extensive police department, a vast public health and hospital system, and the infrastructure required to maintain a city that never sleeps.

Yet beneath the scale and ambition lies a structural weakness. New York’s fiscal foundation is precariously balanced on two narrow pillars: the real estate market and a very small group of wealthy taxpayers. If either one falters, the city stumbles. If both collapse, the consequences could be catastrophic.

The city’s revenues are not evenly distributed across a broad base of taxpayers and industries. Instead, they are heavily concentrated in a few volatile streams.

The largest source is property tax, which generates $33–34 billion annually — about 44 percent of the city’s total tax revenue. Even more striking, roughly 82 percent of this property tax revenue comes from commercial properties, including office towers, hotels, and retail. In other words, New York’s budget depends heavily on the financial health of its skyline.

The second largest source is personal income tax, which produces $16–17 billion a year, or about 21 percent of total tax revenue. This stream is even more precarious because it is carried disproportionately by a tiny fraction of residents. Fewer than one percent of filers — approximately 86,000 millionaires — contribute around 40 percent of the city’s income tax. New York’s fiscal health, therefore, rests on the decisions of a relatively small group of highly mobile individuals.

The remaining revenue comes from business taxes ($11 billion), sales tax ($7 billion), real estate transaction taxes ($5 billion), and other fees ($5 billion). Important as these are, they are not large enough to substitute for the two dominant pillars of real estate and wealthy taxpayers. This structure leaves New York’s finances resembling a house of cards: solid in appearance, but dangerously fragile if even one piece shifts.

Every dollar of revenue is quickly consumed by massive obligations. Education commands the largest share, with $32 billion — nearly 28 percent of the budget. New York spends about $38,000 per student, the highest in the nation and more than double the national average.

Social services and health programs consume about $28 billion (25 percent), covering Medicaid, public hospitals, housing assistance, and other welfare programs. Police, fire, and public safety together require around $12 billion (11 percent). Sanitation, transit, and infrastructure take about $10 billion (9 percent), ensuring that trash is collected, subways and buses operate, and streets remain functional. The city also spends $9 billion annually on debt service (8 percent), merely to pay interest on past borrowing, with the remainder distributed among agencies, administration, and cultural services.

The risks are stark and measurable. If even half of the city’s millionaires were to relocate — to Florida, Texas, or elsewhere — New York would immediately lose $3–4 billion in annual revenue. If all were to leave, the shortfall could exceed $6 billion. To fill the gap, the average taxpayer would need to contribute an additional $1,000 to $2,000 each year in income taxes, or the city would be forced to cut deeply into essential services like education, sanitation, and policing.

If the real estate market suffers a major downturn, the consequences could be just as severe. A 10 percent decline in commercial property values would erase billions from the property tax base. With Midtown office towers still struggling with record vacancies in the wake of remote work, and with high interest rates pushing valuations downward, this risk is far from hypothetical.

Finally, a downturn on Wall Street could prove devastating. Much of the city’s income tax is tied to bonuses, capital gains, and corporate profits. A financial crash — like the one in 2008 — would translate almost instantly into plummeting revenue.

Together, these risks form a doom loop: revenue declines lead to deficits, deficits lead to service cuts, service cuts erode quality of life, and declining quality of life drives even more residents and businesses away, further weakening the tax base.

The answer is not to demand more from these already fragile foundations, but to protect them. Raising real estate taxes in the middle of a commercial downturn would be disastrous. It would further depress valuations, push landlords into distress, and accelerate a downward spiral. Stability is essential for the property market to recover and for the city’s most important revenue stream to remain intact.

Similarly, squeezing high earners with ever-higher income taxes risks driving them out entirely. These taxpayers already contribute a disproportionate share of the budget. Losing them would not punish the wealthy — it would punish the middle class, which would be left to shoulder higher taxes or endure diminished services.

The smarter path is clear: keep real estate taxes stable, prevent capital flight, diversify the economy, and make smarter use of the funds we already collect. Expanding sectors such as technology, life sciences, and advanced manufacturing would broaden the tax base and reduce our dependence on the fortunes of Midtown office towers and Wall Street bonuses.

New York City is the world’s capital of ambition, but ambition cannot hide fragility. Our budget is a precarious house of cards built on two shaky foundations: commercial real estate and a small group of wealthy taxpayers. If either collapses, it will not be the rich who pay the price. It will be the working and middle-class families who remain, facing higher taxes, fewer services, and a diminished quality of life.

If we want New York to remain the world’s greatest city, we must protect its foundations. That means stability in real estate taxes, policies that prevent capital flight, and a renewed focus on growth. Only then can we ensure that the house we have built will not come crashing down.