The New York Stock Exchange (NYSE) could leave town this year should the state impose a tax on exchange-traded stock purchases. “”If Albany lawmakers get their way. . . the center of the global financial industry may need to find a new home”,” said Stacey Cunnigham, the NYSE’s president in a column in The Wall Street Journal.
The proposed tax would apply to any transfers made of stock or financial derivative bonds. Lawmakers in Albany, New York’s state capital, are pushing for the tax in the wake of the state’s declining tax revenues due to the pandemic.
According to the bill’s proponent, State senator Julia Salazar, “The stock exchange will not leave New York—one of the largest financial centers on Earth—if we pass this bill, which would levy very minimal taxes on specific financial transactions, a policy that has long been implemented by other thriving financial centers around the world.”
Governor Andrew Cuomo has shown no signs of supporting the bill for a tax on stock transactions and instead seeks to balance the budget through a higher income tax.
State budget director Robert Mujica, when asked about his opinion said, “it’s a different world now, right. Before, you could tax the transfers and stocks and the transactions because they occur in New York…Today, as we’ve seen with the pandemic, people can do business anywhere…So if we increase the tax like that, you mobilize people, potentially just move your transactions and your servers to another part of the country where those taxes don’t exist.”
A tax on financial transactions is just the tip of the iceberg for the New York wreck
According to the Cato Institute, a tax on stock purchases could discourage small transactions and hurt mainly small investors, who often engage in day-to-day trading. According to the investment firm Vanguard, a 0.1% tax on financial transactions would reduce investments of less than $10,000 by 19% over 20 years. For Vanguard, the consequences of this tax are a more volatile stock market, less secure and with less available liquidity.
To make matters worse, financial transaction taxes in countries that have implemented them, such as France and Italy, have failed to collect half of the taxes they promised when they were implemented. This drop in collection is due to the outflow of investors and the disincentive for small transactions generated by the tax.
The securities industry generates about 18% of New York State’s total tax revenue. In New York City, the financial and insurance sector is responsible for 60% of the wages in the private sector, according to the U.S. Department of Labor.
New York City currently has a tax revenue shortfall of more than $9 billion. While the city is running such a deficit, thousands of individuals and businesses are migrating in whole or in part to states with a tax code that is more friendly to private enterprise.
Credit Suisse, Goldman Sachs, Morgan Stanley, Barclays, UBS, Citigroup, Alliance Bernstein and many other financial institutions have established centers in Florida, North Carolina, Texas and other states less expensive than New York.
A mix of high taxes, mismanagement by City Mayor Bill De Blasio, rising crime and the closing of numerous businesses and schools convinced Goldman Sachs to move its money to Florida.
Billionaire investment fund managers such as Paul Singer and Carl Icahn decided to move their entire operation to Florida, followed by Goldman Sachs asset management manager Leon Cooperman. “I suspect Florida will soon rival New York as a financial center,” Cooperman said in an interview with Forbes.
The coronavirus crisis reinforced a trend that began to become evident two decades ago in New York and certainly the political establishment is doing nothing to reverse it. If the current and future administrations do not consider friendlier tax policies, the world’s largest business center could be out of business in a few years.