NYC seeks sales tax hike; no income tax hike for rich

* NYC mayor, speaker OK sales tax hike, other measures

* NYC speaker fails to win income tax increase approval

* New plan aims to raise $887 million, shut loopholes (Adds byline, new details, paragraphs: 3-13)

By Joan Gralla

NEW YORK, June 1 (Reuters) - New York City's mayor and the Council Speaker on Monday said they will ask the state to let the city hike its sales tax by half a percentage point and close tax loopholes, part of a plan to raise $887 million.

The agreement marks a victory for independent Mayor Michael Bloomberg, who had opposed the Democratic speaker's proposal to instead increase income taxes on the city's wealthiest to close a series of deficits spawned by Wall Street's near collapse.

New York state this spring raised its income tax rates for high-income earners. The mayor had said this left no room for the city to boost its income tax rates for these individuals.

Bloomberg, who stands for a third term in November, and Council Speaker Christine Quinn, announced their agreement just hours after the City Comptroller forecast the city could lose nearly 400,000 jobs before the economy revives, and have to close deficits that were much higher than the mayor predicted. [ID:nN01491707].

Wall Street plays the same role for New York City that car-makers do for Detroit, and both of these industries are being kept afloat with hundreds of billions of taxpayer dollars. "With tax revenues down $5 billion, the economic crisis provided us with only a menu of onerous options to balance the city's budget," Bloomberg said in a joint statement with the speaker.

New York City's sales tax would rise to 4.5 percent, raising $518 million in the new budget that starts on July 1. This would push the total city-state levy to 8.875 percent.

Repealing an exemption for sales taxes on clothing that costs $110 or more would raise $119 million in the new budget. But Quinn noted the exemption remains for clothing that costs less that $110, which lessens the sting for the working class.

The agreement combines some of the mayor's and speaker's proposals to reduce the tax burden for 27,000 businesses that make their homes in New York City. The plan raises $167 million in fiscal 2010, but is revenue neutral over 12 years because 44,000 businesses will pay lower taxes, the statement said.

Corporate taxes will only be based on a company's sales, instead of also including a firm's property and payroll, under a plan Quinn first proposed last year. This will save 27,000 New York City firms $2.7 billion as the plan is phased in over over 10 years, and encourage these companies "to keep jobs and capital in New York City," the mayor and speaker said.

Tax loopholes that mainly benefit larger companies that are not headquartered in New York City would be closed by aligning the city's tax code with the state's.

Another proposal would abolish the unincorporated business tax for small firms, including freelancers, that earn less than $100,000 a year, and reduce this tax for those that earn up to $150,000 a year, the statement said. Bloomberg has made several similar proposals to help laid-off workers start new businesses.

Some $83 million would be raised by ending a tax exemption on energy bought from non-utilities by large, commercial customers of energy.