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New York Post

 

NY Without Wall Street

February 11, 2009

By E. J. McMahon

YOU know New York is in real trouble when it needs an economic reality check from the ex-KGB hood who rules Russia.

"Today, investment banks, the pride of Wall Street, have virtually ceased to exist," Russia's Vladimir Putin recently told the World Economic Forum in Davos. "In just 12 months, they have posted losses exceeding the profits they made in the last 25 years."

Precisely.

It can't be said enough: For New York, this is not just a garden-variety downturn, on the order of 1990-91 or 2001-02. Nor are New Yorkers merely shouldering their proportional share of the misery created by the most severe national and global recession in at least 35 years.

Before the bottom fell out, Wall Street loomed larger in New York's economy than auto manufacturing in Michigan, or oil and gas in Texas. The securities industry was directly generating one-fifth of the state's tax revenues—and indirectly generating much more.

And now Wall Street as we used to know it is gone. Not just down. Out.

Yes, the financial sector will rise again in some form. Smart people will figure out new ways to make lots of money. But the industry that rises from the ashes of last year's meltdown will be far leaner, more heavily regulated and less profitable than Wall Street was at the peak of the last bubble.

So, when the recession ends, the fiscal trouble won't be over for New York. That's because the city and state have come to rely on a financial model that assumes each dip in the economic cycle will be followed by a fresh explosion of revenues generated by some new Wall Street bubble—an explosion that won't be coming this time.

Which means the state and city have to do much more than just make the cuts immediately needed to close next year's gap without significant tax hikes: Both have to fundamentally reform and restructure their budgets to reflect this new economic reality.

Putin got it. But someone still needs to point it out to lawmakers in Albany.

On the Assembly side, Speaker Sheldon Silver continues to encourage talk of hiking state income taxes on households with incomes above $1 million. His members passed two versions of a "millionaire's tax" last year—only to see them blocked by what was then still a Republican majority in the Senate.

Now, however, members of the Senate's new Democratic majority are talking about piling a much bigger increase on the existing statewide marginal rate of 6.85 percent.

One proposal, backed by public-sector unions and promoted by Sen. Eric Schneiderman of Manhattan, would create three new upper-income brackets—ranging from 8.2 percent on incomes of $250,000 to a whopping 10.3 percent on all the taxable income earned by filers in the $1 million-and-above category.

New York's highest rate would return to a level last seen in 1980, when then-Gov. Hugh Carey was still hacking away at the destructive double-digit income tax rates of the Rockefeller-Lindsay era.

The state's largest concentration of wealthy taxpayers can be found in New York City, which also imposes its own income tax. Under the Senate proposal, the marginal state-local rate for the wealthiest city residents would rise to 13.95 percent—even further above what is now the region's second-highest rate, New Jersey's 8.97 percent.

Even for high earners living outside the city, New York's statewide tax rate would be fully double Connecticut's rate, almost double Massachusetts'—and triple the Pennsylvania rate. (See chart.)

The coalition of unions backing the tax hike include New York State United Teachers, which has just begun an ad campaign with the slogan, "It's time the wealthiest pay their fair share." In fact, as of 2007, the wealthiest 1 percent generated 41 percent of the state income tax—while the two-thirds of taxpayers earning less than $50,000 paid less than 5 percent.

So here we are, still in the early months of a crisis made worse by New York's excessive dependence on the taxes generated by a relatively small number of wealthy households whose incomes have plummeted—and the solution offered in some corners is to become even more dependent on a smaller number of people in the same high-income brackets. Only in Albany.

Compounding the problem, Albany's various soak-the-rich proposals are aimed squarely at New York's economic decision-makers—business owners, investors and employers, who also happen to be the most mobile class of New Yorkers.

These are people the state and city need to help engineer a sustainable economic recovery. But these tax hikes would send them the worst possible message, at the worst possible time: You'll make more if you own, invest and employ somewhere else.

Original Source: http://www.nypost.com/seven/02112009/postopinion/opedcolumnists/ny_without_wall_st__154447.htm

 

 
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