Which key sector of New York’s economy has experienced a deep slump that is largely to blame for recent state and city revenue shortfalls?

And which sector of New York’s economy will benefit the most from President Bush’s new tax proposal?

The answer to both questions, of course, is the securities industry.

By seeking the elimination of federal income taxes on shareholder dividends, coupled with faster-than-scheduled cuts in marginal income tax rates, Bush is offering a massive boost to the Empire State, and to New York City in particular.

The president’s plan will deliver billions of dollars a year in permanent tax relief to New Yorkers and encourage investors all over America to invest tens of billions more in Wall Street. Indeed, dollar for dollar, the plan probably does more for New York than for any other state.

Too bad our U.S. senators don’t seem to get it. Within days of the president’s economic address, Chuck Schumer and Hillary Clinton were criticizing Bush’s tax package. Instead, the two Democrats apparently prefer their party’s much more limited stimulus plan, which includes a $30 billion dose of temporary budget relief for state governments.

Before they set their feet in concrete on this issue, Sens. Schumer and Clinton need to recognize that:

* The president’s proposal would amount to a fertility treatment for the goose that lays New York government’s golden eggs.

If Bush’s economic advisers are correct in projecting that the elimination of dividend taxes will increase stock values by 10 percent, the resulting jump in tax revenues from capital gains, securities-industry profits and investment-banker bonuses alone will offset much of any potential drop in state taxes on dividends (a fiscal red herring that Schumer has cited in criticizing the Bush plan).

Given the economic-multiplier effects usually associated with securities firms in New York, the overall upside would be enough to swamp any revenue downside associated with the investor tax break.

* New York is home not only to the stock market, but to more individual shareholders with more dividend income than any other state except California. According the latest IRS data, the Empire State accounts for just 6.6 percent of the nation’s individual income-tax filers, but generates more than 8.5 percent of the dividend income reported on federal tax returns. More than 30 percent of New York tax filers receive dividends, compared to 26 percent in the rest of the country.

* Further tax savings for all New Yorkers will come from the president’s plans to 1) speed up tax-rate cuts now scheduled to take effective in 2004-06, 2) increase the child tax credit, and 3) reduce the tax code’s “marriage penalty” on working couples. For a typical family of four in the New York metro area, these changes will translate into immediate savings of more than $1,100 a year.

For the state as a whole, the plan represents more than $5 billion in added direct tax relief this year, on top of the $7 billion New Yorkers were already set to receive under the 2001 tax-cut law.

Why aren’t New York senators embracing a set of proposals that so obviously favor New York? It’s not just the usual partisan posturing, but also a basic philosophical difference between Bush and his critics in the political establishments of both major parties.

The president wants to promote long-term economic growth by permanently returning more money directly to taxpayers, who will spend, save and invest it in the private sector. Schumer and Mrs. Clinton prefer to funnel more money to politicians in Albany (and other state capitals) – who, if history is any guide, will simply use it to postpone tough budget decisions for another year.

Clearly, the White House will need to negotiate this proposal with congressional Democrats – particularly in the Senate – before anything is enacted. Which leads to one last question: When the horse-trading is done, will New York’s senators help deliver what New York really needs most?

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

You may also like

Cuomo’s Buffalo Billion was beyond corrupt

The overarching scandal here wasn’t bid-rigging or the pay-to-play pattern in the developers’ contributions to the governor’s reelection campaign. At the root was a simply awful public policy — corporate welfare on steroids — that neither Cuomo nor most of his critics have definitively renounced, even now. Read More

New York’s SALT Substitute

Gov. Andrew Cuomo began 2018 the way he ended 2017: demonizing Washington Republicans and fulminating against the newly enacted federal tax reform, especially its $10,000 cap on state and local tax (SALT) deductions. Two weeks after his State of the State message, Cuomo devoted a portion of his fiscal 2019 budget presentation to the same subject, pledging again to come up with a plan to restructure the code by shifting from an employee-paid to an employer-paid income-tax system. Read More

Cuomo policies discourage employers

The recent announcement that Dick’s Sporting Goods will build a 650,000-square-foot distribution center in Binghamton has been cited by Gov. Andrew Cuomo as further evidence of an economic resurgence in the region. “Five years ago, we had a 7.9 percent unemployment rate in the Southern Tier,” Cuomo said. “Today, 4.6 percent. The arrows are headed in the right direction.” In fact, as shown in the state Labor Department’s household survey data, the unemployment rate dropped only because fewer residents of the region are available and looking for work. If the labor force were still at its 2010 level, the unemployment rate would be 13 percent. Read More

The Cuomo Way

From Albany to Buffalo, the New York governor’s clubby approach to economic development invites—and deserves—scrutiny. Read More

Fending Off Cuomo’s $15 Fetish

New York has seldom seen an executive initiative as politically radical or economically reckless as Gov. Cuomo’s proposal for a $15-per-hour statewide minimum wage. Read More

New York’s Two-State Solution?

Bill de Blasio was at a ballgame in Queens last Sunday afternoon when a group of rural landowners, town officials, Second Amendment advocates and Tea Party activists rallied in the Southern Tier village of Bainbridge on behalf of a radical reform that would dramatically enhance the mayor’s power in his own backyard: a breakup of New York state. Read More

Cuomo’s Sluggish “Start-up”

Few economic development initiatives in New York State’s history have been the subject of more marketing hype than START-UP NY, which created scores of tax-free micro-zones on and near college campuses around the state. Governor Andrew Cuomo has spared no superlatives in describing his expectations for the program, backing it with a slick, $47 million advertising campaign that touted START-UP as proof that “in New York State, we’re changing the way we do business.” But the results so far haven’t come close to living up to the governor’s rhetoric. Read More

A robust upstate economy? Claims do not hold up

The Southern Tier has been among the most poorly performing regions of a weak upstate New York economy over the past four years. But you sure wouldn’t know it from listening to Howard Zemsky, the Buffalo developer recently named by Gov. Andrew Cuomo to chair the Empire State Development Corp. Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100
Fax: 518-434-3130
E-Mail: info@empirecenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.