The financial crisis that has engulfed the nation in recent months has spread to every sector of the New York economy, including Wall Street. While most taxpayers feel a strong disconnect between their everyday middle-class lives and investment honchos, in reality, problems on Wall Street present very real consequences on the rest of the state. Today, more than ever, the popular metaphor “when Wall Street sneezes, New York state gets the flu” is ever more apparent.
New York state receives about 20 percent of its tax revenues from Wall Street in the form of taxes on income, bonuses, capital gains and large real estate transactions. In fact, a recent report by the New York City Comptroller’s Office indicated that Wall Street incomes have more than doubled to an average of $387,000, demonstrating the sheer amount of taxable income available to the state.
Unfortunately, as recent financial news has indicated, Wall Street is no more immune from economic hardships than small businesses and middle-class taxpayers. Like in most sectors, economic downturn leads to job losses. However, Wall Street’s immense impact on the New York state budget has led to unforeseen impacts on middle-class taxpayers. The economic slowdown has led to a mortgage credit crisis and the collapse of Bear Stearns and with it, a larger than expected job loss. Economy.com expects 25,000 Wall Street jobs will be lost and the New York State Comptroller’s Office reported in January that average 2007 Wall Street bonuses have dropped 4.7 percent.
Wall Street’s troubles point to difficult times for New York state as we move forward. Unlike other sectors, when Wall Street suffers, our economy does not just slow down. Wall Street’s substantial effect on state finances has led to huge revenue gaps and historic budget deficits.
In recent years, spending has continued to rise. Comptroller Thomas Dinapoli projects that spending will rise 7.4% every year until 2011-12, while revenues are only projected to increase by an average of 4.7%. This is clearly unsustainable. We must act now to limit the impact of the substantial decline in tax revenue. While Governor Paterson has proposed $800 million in spending cuts, the reduction in government spending must not end there. It is vital that we continue to meet our commitment to taxpayers, but demonstrate the fiscal restraint necessary to ensure future economic prosperity and reduce the need to raise taxes. I urge my fellow legislators to do the same.