New York City and state officials should consider higher taxes on Wall Street bonuses in the face of deficits and shrinking revenue, city Comptroller John Liu said.
Gov. David Paterson and Mayor Michael Bloomberg were wrong to rule out tax increases on bonuses to employees of banks and financial companies that received federal bailout funds, Liu said Thursday at a Manhattan breakfast sponsored by Crain's New York Business.
"We're not at a point in time where it's prudent to exclude any options," Liu said, citing Paterson's prediction of a $9 billion deficit for the state and Bloomberg's $4 billion projected city budget gap.
Wall Street bonuses jumped 17%, to $20.3 billion in 2009 from a year earlier, based on personal income tax collections, as the securities industry rebounded from the worst financial crisis since the 1930s, the New York State Comptroller's office said in February.
In December, the U.K. introduced a one-time 50% levy on discretionary bank bonuses of more than 25,000 pounds ($37,500) to encourage banks to build up their capital following a taxpayer bailout. The U.K. Treasury, which initially said the tax would raise 550 million pounds, now estimates it may net as much as 2 billion pounds, according to a government official who declined to be identified.
While taxing bonuses may prompt some employers to leave New York City, "so would decimating the police force by a quarter or 20% , or even 10%, which will make the city less livable," said Liu, a Democrat who took office in January. "We need to find a balance."
Paterson has likened Wall Street's value to New York to the auto industry's importance to Detroit, or the wine industry to California's Napa Valley. The financial industry accounted for about 20% of New York State's revenue in 2007, he has said.
"The whole industry is now more electronic and the geographic location is no longer important," Paterson said in an April 7 interview on WNYC radio. "If you want Wall Street to become a street in New Jersey or Greenwich, that's the fastest way to get those companies to move."
Bloomberg echoed that view in speaking to reporters at City Hall on Wednesday.
"If you want to drive businesses out of here, that's a good way to do it," the mayor said. Other cities "are just licking their chops" to attract people and businesses who would leave New York for areas with lower taxes, Bloomberg said.
Liu, who oversees the city's five pension funds, which totaled $98 billion in January, also said the mayor's revenue projections for next year are too optimistic.
"My office estimates that tax revenues will fall far short of city projections starting next year due to a weaker recovery," Liu said. "Our aid payments from the state are in jeopardy, and we're still not budgeting for overtime costs."
Traders and headhunters reacted to Liu's comments with derision.
"This is a way to make sure tax coffers won't get filled because you will drive away business," said Michael Holland, who oversees more than $4 billion as the chairman of the New York investment firm Holland & Co. "It's a short-sighted measure that will harm the state and the city's tax revenues."
Jeanne Branthover, head of the financial services practice at Boyden Global Executive Search in New York, said companies "will try to package compensation to get around it by, for example, deferring payment, or moving away."