The financial and corporate sectors’ highest rollers during the boom-and-bubble period have also been hit hardest by the recession.  A must-read story on the front page of today’s Wall Street Journal reviews how the downturn is affecting the incomes of the top 1 percent—a syndrome with obvious implications for New York’s budget picture.

The leveling of incomes is no abstraction to people like Anthony Carmenate, a son of Cuban immigrants who worked his way from a boyhood job at a Chinese laundry in Hoboken, N.J., to the top ranks of Bank of America’s asset-management business.

[snip]

This spring, the 42-year-old Mr. Carmenate was laid off, and he has struggled to find a job at anywhere near his former pay [of $500,000 a year]. He meets with ex-colleagues, calls headhunters and taps his personal network, but, with banks wiping out layers of management, he says, “whenever I get a lead, I find that there is a sea of people like me applying for the same one.” He has started to do some consulting work.

“I’m an optimistic guy,” he says. “But salaries like mine aren’t likely to come back anytime soon. It’s simple: Wall Street doesn’t need as many people as it used to.”

Carmenate now lives in Boston, but he has thousands of counterparts in the New York City region–nearly all of whom formerly paid income taxes to Albany.  Many of these talented men and women, like Carmenate, are living off their dwindling savings while cutting steadily back on expenses.  At some point, they will be forced to accept lower-paying work, if they can find it in the area.  Or they will move—if they can find someone to purchase their McMansions.

While insisting they understand the special nature of the financial crisis and its aftermath, Governor Paterson and the Legislature have responded to it as if it were just another cyclical downturn.    The temporary three-year income tax increase enacted with the 2009-10 budget is designed to (a) squeeze more money from those well-paid investment bankers, lawyers and corporate executives who still have jobs, while (b) hoping the whole sector will bounce back soon to boom-time levels.  However,

New York University economist Thomas Philippon and Virginia’s Mr. Reshef estimate 30% to 50% of the extra pay received by finance-industry workers reflected a bubble in the sector.

In other words, the days of easy money for Albany, in the form of record increases in personal income tax collections, won’t return unless the bubble returns with it.   Which, we can only hope, is highly unlikely.