New York is losing middle-class wage earners, who are fed up with the high cost of living and increasingly aware that a better deal beckons elsewhere. Three recent items in the news – an analysis of census data in the five boroughs of New York City, a public opinion poll on property taxes on Long Island, and a nationwide survey of income inequality – all make this abundantly clear.

The news analysis in the New York Times found that incomes in the four boroughs outside of Manhattan have not risen since 2002, and, in fact, actually fell, most precipitously on Staten Island, where real wages dropped 8.3 %. Only in Manhattan did wages rise. Moreover, it found, the trend is long-standing. Since 1995, wages in the outer boroughs have barely budged, even during a time when America has experienced a remarkable economic boom. Again, wage growth in Manhattan is the exception.

Additional bad news came in the form of an opinion poll on Long Island, where 95% of respondents called property taxes a serious problem, as well they should, since taxes in Nassau County are fully three times the national average. Partly in consequence, 54% said they had trouble paying the mortgage. The reason for high taxes, a government expert explained, is the disproportionately high cost of local government.

And then, a left-of-center think tank reported that New York State has the highest income inequality anywhere in America, with the top fifth of families earning 8.11 times more than the lowest fifth.

What is vexing New York? Obviously, there are a number of answers. Schools are clearly a problem, but sadly, shortcomings in public education are not distinctive to New York. In this particular case, I believe, the overarching answer is economic policy. Government in New York, notwithstanding the on-again, off-again efforts of Republican elected officials, is simply too hostile to business and the market.

We have the highest combined state and local taxes in the country, the second highest utility costs after Hawaii, some of the highest insurance rates, an out-of-control worker’s compensation system, and, in New York City, housing and construction policies that make it much too expensive to build. Even groceries are more costly. Is it any wonder that once the bills are paid, many New Yorkers wonder why they have so little to show for their hard work? Is it any wonder that those in the middle would find themselves frustrated?

The importance of the high cost of living in New York cannot be overstated. Clearly, it contributes to the loss of population upstate and the ongoing churn here in the City. There is an additional, political cost that is not so obvious but absolutely must be understood. It requires a brief explanation.

Based on nominal census data, New York looks to be quite prosperous. Using per capita money income as tallied in the 2000 census, for example, New York is the eighth most prosperous state. Not bad, but anyone who actually lives here, and knows what things cost, would be excused for being skeptical. And rightly so.

In a comprehensive study by the Taubman Center at Harvard University, for example, it was estimated that the cost of living in New York is 13 % above the national average or fourth highest in the country. Correcting nominal data for what it actually costs to live here drops New York from number eight to number 26. Strikingly, the standard of living for African-Americans comes in even lower at number 36. Among the states, where African-Americans enjoy a higher standard of living are seven in the South, including Texas, with adjusted incomes 15% higher and Georgia, 14% higher.

The failure to correct for the high costs in New York, and acknowledge that we are not rich, and in some cases quite poor, makes it much easier for those who want to impose high taxes to argue that New York can afford them. They are wrong. New York cannot afford higher taxes, especially as competition grows from other, economically savvy states. Now is the time to admit this, recognize the challenges we face, and restore middle class opportunity in New York City and throughout the Empire State.

Mr. Daniels served as secretary of state in the Pataki administration and is a candidate for governor as a Republican.