New York City and state officials should consider higher taxes on Wall Street bonuses in the face of deficits and shrinking revenue, Comptroller John Liu said.
Governor 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 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 percent 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, New York State Comptroller Thomas DiNapoli said in February.
In December, the U.K. government introduced a one-time 50 percent 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 percent, or even 10 percent, which will make the city less livable,” said Liu, 43, a Democrat who took office in January. “We need to find a balance.”
Paterson, 55, 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 percent 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, when asked about taxing bonuses. “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, 68, expressed a similar view today during a Manhattan lunch with corporate executives.
‘Disaster’ for City
Increased taxes on Wall Street firms and executive compensation “would be a disaster for this city,” he said. “Our personal-income taxes for New York City are roughly $7 billion a year and 100 people pay 10 percent of it. You start driving some of those people out and they take jobs with them.
“Unfortunately a little banker-bashing is just too inviting for some members of Congress to pass up,” the mayor said earlier in his prepared remarks to the group. “That’s why they’re proposing excessive and even retroactive taxes on financial institutions.”
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 chairman of 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 would find ways to package bonuses to help employees make more money to exempt them from ordinary income taxes.
“They will try to package compensation to get around it by, for example, deferring payment, or moving away,” she said.
The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
To contact the reporter on this story: Henry Goldman in New York at firstname.lastname@example.org