In New York, bodegas collect sales taxes and send them on to local and state governments. Grocery stores and dry cleaners and restaurants do the same. So why, in a state whose largest single industry is finance, are purchases of stocks, bonds and similar instruments exempt?
They shouldn’t be. A bill recently introduced by state Sen. Julia Salazar and Assemblywoman Yuh-Line Niou would place modest fees on such transactions that are projected to throw off impressive results: $12-29 billion per year, with well-conceived provisions to prevent location-based evasion. The financial transitions tax is part of an ambitious revenue package known as the Invest in Our New York Act. It’s intended not only to address budget deficits that could total as much as $63 billion over the next four years but also to reverse rampant inequality and decades of disinvestment in crucial services and infrastructure that set the stage for disaster well before COVID struck.
The tax is small: a 0.5% sales tax on the value of stock trades, 0.1% on debt and 0.005% on derivatives. That’s far less than the combined city and state sales tax of 8.875% on a sandwich at that bodega. The majority of the taxes would be paid by hedge funds, whose flash-trading makes up more than half of current trading volume.
The revenue the measure would inject into the state’s frayed economy would protect jobs. Most New Yorkers won’t feel any pinch in their taxes; fully half of American families don’t have retirement accounts, and those who do could end up saving money, because the tax would disincentivize high-churn trading that’s profitable for brokerage firms but costly to investors.
But Wall Street banks and trading platforms are claiming they’ll blow up their entire businesses, moving them en masse to other states, to avoid the proposed taxes. They want us to believe that about 10,000 broker-dealers and about 40,000 investment managers, dozens of multi-billion-dollar hedge funds and private equity funds, the whole New York Stock Exchange and a handful of banks would decide to leave New York all at once, simply to avoid paying a tiny sales tax that could fund public schools, housing, health care, public transportation and a just climate transition for the residents of America’s richest metropolis.
It’s déjà vu all over again. When a stock transfer tax was introduced in New York in 1905, it met with similar fearmongering: “There is a very great probability that the bill, if enacted, would...chiefly because of the transfer of Stock Exchange business to other states, so far fail in its purpose that the resulting revenue would be inconsiderable” opined the New York Times.
But a few months after the law was enacted, the paper was already eating its words: “The State Controller reports the stock transfer tax as unexpectedly productive...The projected rival exchange across the river in New Jersey was a failure and a jest. Neither is there discoverable any loss of business to other cities.”
Wall Street made similar threats about leaving New York in 1966, when Mayor John Lindsay asked the Legislature to increase the stock transfer tax in another era of great need. Once again the measure passed, and the NYSE remained in New York.
Meanwhile, the tax generated billions of dollars in revenue, even in years when other sources dipped, helping to fund CUNY, SUNY, Mitchell-Lama housing, world-class public transit and an internationally admired public health system. It wasn’t until 1981, with Reaganism sweeping the country, that billionaires finally strong-armed Albany into rebating the tax. The resulting loss in revenue helped usher in decades of punishing cuts to services and job losses — and deeply regressive property and sales taxes — that New Yorkers still feel every day.
Wall Street was making empty threats in 1905 and 1966, and it is making an empty threat now. There would be no “flipping a switch” to avoid the tax currently proposed. The proposal’s three-part residency test safeguards against evasion by resting on location of exchange, broker and resident or business party to transaction. Escaping it would require hundreds of thousands of extraordinarily well-paid professionals to abandon homes, jobs and communities, making the brokerages lose literally billions of dollars every day until they established new businesses and business relationships.
It’s obvious that it’s much easier to collect a few pennies of sales tax on each securities trade — via the same software systems used to process those transactions — than to avoid it.
Albany lawmakers should once again call Wall Street’s bluff and put the public interest first. A fair tax on Wall Street is an essential element for this year’s state budget.
Kink is executive director of the Strong Economy for All Coalition. Saletan is a founding member of Indivisible Harlem and the Invest in Our New York Coalition.