New York State's frantic efforts to raise more cash can lead to unintended consequences. The president of New York Stock Exchange (NYSE) has said it could be forced to move from the state if the legislators are going ahead with the plans to impose a transfer tax on the stock sales.
"The New York Stock Exchange belongs in New York ... If Albany lawmakers get their way, however, the center of the global financial industry may need to find a new home," NYSE President Stacey Cunningham said in an article published on the Wall Street Journal. Cunningham said as many as 25 other representatives of New York's securities industry have warned the state legislative leaders about the ramifications of such a tax.
NY's Severe Budgetary Shortfall
New York State, which is facing severe budgetary pressure triggered by the coronavirus pandemic, has been mulling the imposition of taxes on certain financial transactions.
The purpose of this bill is to raise additional tax revenues by taxing the trading activities of financial services firms including investment banks and hedge funds. The tax applies at low rates to transfers of stocks, bonds, and derivatives, according to the summary of 'Senate Bill S3980'.
The whole premise of the new bill is that New York is a wealthy state with a huge number of super rich who are undertaxed. The lawmakers note that, considered as a separate country, New York would be one of the wealthiest globally. However, NY lawmakers believes that he many high-earning professionals and wealthy families in this state undertaxed,
"The state government, lacking adequate tax revenues, has been unable to afford essential public investment and social spending, including upgrading our infrastructure, repairing public housing, protecting public education, and financing Medicaid," the bill says.
Undertaxed Financial Industry
The bill also notes that NY's financial industry, which contributes substantially to the economic dynamism of this state, is also largely responsible for growing economic inequality and the rising cost of living.
"Wall Street bankers get richer every year, and their gains do not trickle down. Corporate raiders and private equity firms engage in predatory investing, laying off workers for the sake of short term profits," it says.
The government also justifies the newly proposed stock transfer tax by saying that countries around the world have imposed taxes on stock trading for centuries. It says that the United States itself imposed a tax on stock transfers between 1914 and 1965, and New York had its own Stock Transfer Tax that was imposed from 1905 through 1981.
The administration also says that, contrary to the financial industry's belief that it can bail out of NY, such a scenario is not practically possible. Such an argument is fundamentally confused about what makes it possible for a financial center to
"Wall Street cannot leave New York. Without urban infrastructure, a highly educated workforce, sound government regulation, and a sophisticated commercial environment, the financial sector cannot exist."