“If you can make it here, you can make it anywhere,” goes the line from Frank Sinatra’s famous song “New York, New York.”
For folks in New York and New Jersey, “anywhere” is starting to look pretty good as legislators push for misguided tax hikes, bonding schemes, and more, to keep big-spending budgets afloat.
One might recall that New York passed a budget back in early April, one that avoided the variety of significant tax increase proposals that were floating around Albany. Yet, after departing the capitol for a while, legislators returned for an emergency session focused on police reform. Much to the chagrin of beleaguered New York taxpayers, legislators have stuck around.
New York, with a currently projected $13 billion hole, is seeing left-wing interests push hard for “billionaire taxes” – to the point of having gangs of people with dummy pitchforks roam around nice Long Island neighborhoods demanding people pay their “fair share.”
The $5.5 billion tax proposed is an entirely new tax on New Yorkers and companies with $1 billion or more in assets. It’s a capital gains tax, but on unrealized gains. The state’s 8.8% tax rate on capital gains would be applied to any growth in value.
It is potentially also unconstitutional, as New York’s Empire Center explains.
For some reason, Alexandria Ocasio-Cortez has become one of the faces of this effort, probably a bad sign that this is coming to Congress if Joe Biden is elected president.
CNBC explains: “If Bloomberg LP, the financial-information giant owned by Mike Bloomberg, gained $5 billion in value in 2020, he would pay about $440 million in taxes. If assets lose value, the billionaires can use the loss — or “carry it forward” — indefinitely to reduce taxes in future years.”
One of the groups peddling this tax, Americans for Tax Fairness, is behind the viral social media claim that ‘America’s billionaires got $434 billion richer during the pandemic’.
This happens to be completely false. A MarketWatch examination found, “Cumulatively, the top 50 billionaires lost $232 billion between the market’s peak and this Tuesday. If the remaining billionaires on the Forbes list lost wealth at the same roughly 12.5% rate that the top 50 experienced, that’s another $200 billion–plus wiped out.”
But why let facts get in the way of fantasy?
Assemblyman Phil Steck certainly isn’t. He’s sponsoring another tax hike, proposing to restore and expand the stock transfer tax at an estimated cost of $13 billion annually to taxpayers. The tax will work against this aim of course, as higher costs will disincentivize trading, reducing revenue.
The fake out here is a pretense this is also about hunting fat cats. When the reality is this would hit every individual investor, anyone with a 401(k), day traders, and on. The value of everyone’s portfolio would go down.
“Steck’s bill calls for a tax of 1.25 cents on a sale of stock worth $5 or less a share to as much as 5 cents for stocks worth more than $20 per share.” (Incredibly, some of this money would eventually go to the Metropolitan Transit Authority, essentially throwing the money into an endless pit never to be seen again.)
With the tax being based on the per-share value of the stock, it is quite regressive. Any working stiff who has some shares of Apple or Microsoft who trades them will pay a high transfer tax for that sale.
This doesn’t concern Steck, who seems to not realize many investors do not pay fees on trades anymore, and the growth of passive investing means many do not pay high management fees that would dwarf any transfer tax concern.
Further, Steck wants his tax to hit new transactions that the old model would not have included. Finally, he eerily cites the Wayfair internet sales tax decision as allowing this tax to apply even though New Jersey hosts the computers that process trades.
The danger of course is that the exchanges will leave. The original stock transfer tax was neutralized in the 1980s because the exchanges threatened to leave, and now it would be easier than ever to do so.
Back to New Jersey, they are also doing their level best to drive out any remaining wealthy individuals, families, and businesses – including proposing a financial transactions tax like New York’s. New Jersey’s bill (A4402), sponsored by Assemblyman McKeon, would institute a 0.25 cent per transaction tax.
If both of these states added similar taxes on financial transactions, one based on hosting the exchanges, the other, infrastructure to process trades, what then? We’d see the downsides steepen. For New York, where the state comptroller reports 17% of state revenues come from Wall Street, the downside risk is huge.