Mayor Bloomberg went to Washington on Monday to sound the alarm over Wall Street-bashing in Congress that may lead to higher taxes and crippling regulations that could drive financial firms out of the city, out of the country — or out of business.
He’s right: A threat to the financial sector is a threat to the whole city economy — but it’s far from the only problem. Thanks to the profligacy of both George W. Bush and Barack Obama, the burden of government has significantly expanded and New Yorkers are hit with an unfair share of the cost. And countless Washington policies disproportionately hurt New York, with New York City suffering the greatest damage.
Many federal regulations unfairly penalize New York. For example, the Sarbanes-Oxley law was bad news for the whole country, since it imposed costs far larger than its benefits. But New York suffered the most, since a lot of financial business fled to Hong Kong, Bermuda, London, Zurich and other financial centers with a more common-sense approach to regulatory matters.
“[T]hings are going to get worse before they get better.”
Now the politicians want to make a bad situation worse with a financial “reform” bill that will impose regulatory burdens that make Wall Street less competitive. To add insult to injury, the legislation does nothing to address the misguided government policies — easy money from the Federal Reserve and the corrupt system of subsidies from the government-created housing entities Fannie Mae and Freddie Mac — that deserve most of the blame for the financial crisis.
New York also loses when it comes to straight tax-and-spend issues. Federal spending has approximately doubled during the Bush-Obama years — great news for special-interest groups, but bad news for New Yorkers, who pay a disproportionate share of federal taxes because of higher-than-average incomes. Needless to say, the IRS code allows no compensation for New Yorkers’ higher-than-average living expenses.
New Yorkers also lose on the spending side of the ledger. According to the Tax Foundation, the state gets back only about 80 cents for every $1 it sends to Washington. But the harm is actually greater — because Washington takes that dollar from the job-creating private sector and returns the 80 cents in the form of handouts, subsidies and pork of very dubious economic benefit.
And things are going to get worse before they get better. President Obama wants higher tax rates on income, higher tax rates on capital gains and increased double taxation of dividends. That will tilt the overall tax burden even further against New York. The taxes on investment, in particular, will hurt Wall Street — on which the city’s economy depends.
The president also plans to reinstate the death tax — with a top rate of at least 45 percent. That, too, will disproportionately divert money from New York’s economy (albeit generating considerable business for the city’s lawyers, accountants and financial planners).
On top of all this comes the drive in Congress for a dramatic increase in the capital-gains tax imposed on “carried interest.” That bit of jargon refers to an arrangement whereby fund managers charge lower fees in exchange for getting a slice of any capital gains — a very sound way of making sure investment funds are looking out for investors’ interests. Sharply raising the tax on the fund’s share of any capital gains will push almost everyone back to the less-efficient structure of high fees regardless of whether investments rise in value.
And this bad policy will cost New York — adding to the discriminatory transfer of money from New York to the politicians in Washington.
Last but not least, it’s only fair to note that New York’s state and local politicians aren’t doing much to offset the damage from Washington. State and city taxes are far too high, accelerating the loss of jobs and investment — especially to states such as Texas and Florida that don’t impose income tax.
If New York City and state want more prosperity, they need their politicians at all levels to reverse course and concentrate instead on reducing the burden of government.