On Wednesday, a trade group representing some the most powerful economic markets in the world wrote a letter to Governor Andrew Cuomo, outlining their opposition to the creation of any new taxes on stock trading in New York.
“While some see this as a tax on the securities industry itself, it is actually a tax on working families saving for retirement and college, pension funds that secure retirement for millions, as well as many individual investors, foundations and endowments,” the group wrote. Imposing any form of a stock market tax, they noted, “could lead financial firms to move their back-office operations and related jobs outside of New York.”
As Congress continues to debate the size and scope of a federal pandemic relief package, the state faces a $15 billion budget shortfall and many difficult choices. One of Cuomo’s budget proposals includes higher income taxes on wealthy New Yorkers, an idea he had long dismissed. New York City has lost hundreds of thousands of jobs during the pandemic, and the economy may be years away from a full recovery. In response, state legislators have prepared a menu of new tax bills targeting the rich, including a billionaire’s tax, and a tax on stock transfers.
New York has taxed stock trades since 1905, charging a percentage of the stock’s value to whichever party initiates the trade, for trades that occur in the state, with a $350 daily maximum. But in 1981, the state effectively stopped collecting the tax, and has returned any money that it accrues—last year, that amounted to more than $4 billion.
“The hard truth is, New York needs the securities industry more than the securities industry needs New York. The city can’t afford a tax that pushes it out of town,” the NY Times editorial board wrote in 1983, when efforts to revive the tax were discussed.
One recent proposal in the State Senate, would lower the 100% rebate on the current stock transfer tax to 60%. Another Assembly proposal would completely eliminate the rebate, and increases the scope of the tax to include any party that works or lives in New York state.
Earlier this week, Brooklyn State Senator Julia Salazar widened the net further, and introduced a “Wall Street Tax.” The tax would capture 0.5% of the value of stock trades, 0.1% of bond trades, and .005% of derivative trades. The proposal is similar to a federal tax pitched by Vermont Senator Bernie Sanders, and Salazar’s legislation states it would raise between $12 and $29 billion annually. According to the State Comptroller, the financial industry netted more than $26 billion in pre-tax profits for the first six months of 2020, more than all of 2019. The average salary for its 182,000 workers was more than $400,000, and they represented 18% and 6% of all state and city tax collections.
Senator Salazar told Gothamist that the devastation caused by the pandemic has created a sense of urgency among her fellow lawmakers to propose and support legislation that some may not have previously considered.
“There’s more solidarity, honestly, and then maybe there’s a development of class consciousness,” Salazar said. “And then there’s been the reporting and the acknowledgement that there are corporations and individuals, billionaires in the state, whose profits have increased over the course of the last ten months. And I think people recognize the fundamental unfairness and injustice in that.”
New York State Governor Andrew Cuomo rings the opening bell New York Stock Exchange to mark the historic reopening of the NYSE Trading Floor on May 26, 2020. Courtney Crow/AP/Shutterstock
Steven Rosenthal, a senior fellow at the Tax Policy Institute at the Urban Institute & Brookings Institution, said that a state stock transfer tax would not soak everyday investors and retirees, despite the arguments made by the financial industry.
“They tell you that the stockholders are pension funds, workers, and the little man. And that’s wrong. It’s like, rich guys, overwhelmingly,” Rosenthal said. He pointed to federal data showing that the wealthiest 10 percent of households owned an average $1.7 million in stock, while households in the bottom 50 percent owned an average of $11,000.
Rosenthal said that one of the main arguments in favor of a state stock transfer tax—that it would indeed raise billions of dollars—could also work against it. The Wall Street Tax legislation would create a “residency test” to see whether the exchange, or the broker, or the party itself resided in New York. Most of the trading on the New York Stock Exchange currently happens on computer servers in New Jersey, and the stockbrokers themselves may find it more competitive to leave the state if they have to pass fees on to their customers. (When New Jersey threatened to tax the NYSE’s servers in September, the market responded by transferring trades to Chicago.)
“The question is, when you raise a lot of money, what are the distortions? And one distortion is simply moving trade, and that definitely has to be addressed. And I’m skeptical that can be addressed by a state-level tax,” Rosenthal said.
This is the Citizens Budget Commission’s basis for opposing a revival of the stock transfer tax. “If the tax goes back into effect as written, many trades would simply move to other states to avoid the tax,” the group wrote in the fall, adding that widening the tax the way the Wall Street Tax proposal states “would put New York securities firms at a competitive disadvantage.”
“Faced with a STT in New York State, firms are likely to relocate trading activity outside of the State to offer a better price for their clients, taking jobs and related economic activity with them,” the securities trade group wrote to Cuomo. The two largest markets in the world, the NYSE and NASDAQ, both signed the letter.
Monica Klein, a spokesperson for Invest In Our New York, the group that is advocating for higher taxes on wealthy New Yorkers, insisted that avoiding the Wall Street Tax would be “no small task.”
“Businesses and traders would have to entirely move to another state, or at least significantly relocate their trading operations. These businesses depend on our highly developed labor markets, infrastructure, and government regulation, and they would lose far more than they would gain if they moved out of the state,” Klein wrote in an email.
Governor Cuomo’s office has pledged to review any new legislation. The governor has not signaled support for any new taxes except higher income taxes on the wealthy, and only in the event of a shortage of federal aid, while the leaders of the state legislature have said they are interested in doing more.
In 1966, New York City Mayor John Lindsay asked the state legislature to increase the stock transfer tax to fund libraries, parks, hospitals, community colleges, and programs to fight poverty. “The budget is large, but the needs of the city are great,” Lindsay said, as recounted in Kim Phillips-Fein’s Fear City.
In response, “The New York Stock Exchange threatened to leave the city altogether if the stock transfer tax went through, relocating to Connecticut or perhaps even California,” Phillips-Fein wrote. The president of the NYSE “barraged local newspapers with letters” and pleaded with the publisher of the New York Times, A.O. Sulzberger. The tax increase ultimately passed, and the NYSE remained in New York.
“I think that if opponents of the proposal, namely, ultra-wealthy people and lobbyists for the financial industry, thought that this tax could simply be avoided, then they wouldn’t be so actively opposing it,” Salazar said. “Because they don’t want to pay more taxes.”