Sent by Philip Aaronson on 11-04-2006:
Although the Bush tax cuts may have had the immediate effect of stimulating the economy and the tax take in New York, the aggregate increase in debt for New Yorkers caused by the worsening of the federal deficit consequent upon these cuts far outweighs their beneficial fiscal effects. It is the taxpayer who owes this money, not the government. Although the tax cuts may have stimulated the economy, they have not done so anywhere near sufficiently to make up for their direct effect upon the deficit. Does creating a long term debt to cause a temporary economic boom (which now seems to be ebbing) now constitute intelligent planning?
Since it is likely that the rich will have to eventually pay more in tax to clear the deficit, it is the rich who will ironically lose most from the tax cuts when the reckoning comes due.
An opinion piece in Tuesdays Wall Street Journal by Democratic senator Charles Schumer of New York and Gotham mayor Michael Bloomberg outlined the threat that competition from London and other markets poses to Wall Streetsand New Yorksfuture, partly because of the Sarbanes-Oxley Act, which Congress passed in 2002. SarBox (or SOX) became law as a response to the corporate scandals of recent years. But the legislations complex new auditing and reporting requirements have so increased the cost of beingand becominga publicly held company in the U.S. that businesses are either avoiding public offerings entirely or going to overseas markets to complete them. As Schumer and Bloomberg rightly note, in 2005 only one of the worlds 24 largest public offerings took place in New York. To correct this problem, the pair urges a series of reforms, including toning down Sarbanes-Oxley.
Its good to see the mayor and the senator calling for reform of SarBox. Yet its hard to take Schumer seriously, considering that he, New Yorks other senator, Hillary Clinton, and virtually all of the citys Democratic congressional delegation have consistently voted against any federal legislation thats good for Wall Street.
Consider, for instance, the 2003 federal tax package, which included a set of investment tax cuts on dividends and capital gains. The Bush administration designed those cuts to spur investment in the U.S. economy. They had the ancillary benefit, though, of revving up Wall Streetdriving the stock market higher, increasing investment firms profits and employee bonuses, and pouring billions of additional tax dollars into Gothams coffers. In 2003 alone, the city collected an estimated $1 billion more in taxes than it had anticipated, mostly thanks to Wall Streets robust revival. That revival is perhaps the single most important event in New Yorks post-9/11 fiscal and economic recovery. Yet every member of New Yorks Democratic delegation voted against the tax cuts that ignited it; some derided the tax measure as a mere gift to the rich, even though about 60 percent of those who own stocks or mutual funds in the United States earn less than $100,000 a year.
Its not as if the citys congressional representatives lack evidence for what energizes Wall Street. Over the previous quarter century, Washington has cut the capital gains tax twice, in 1978 and 1997. Both times, the markets soared, profits bulged, and the citys economy took off. It was precisely because of that history that Mayor Rudy Giuliani, asked after 9/11 what the federal government might do to help New York recover from the attack, urged additional investment tax cutsa call that the citys congressional delegation promptly ignored, leaving it to representatives from other parts of the country to craft the 2003 legislation in such a way that it boosted New York.
Harlems Representative Charles Rangel showed best how clueless New Yorks congressional delegation is about such matters when he criticized the 2003 tax: [W]hat do the House Republicans offer as a way to help our economy? A capital gains tax cut that mainly goes to wealthy investors. Can you imagine a Texas congressman deriding tax cuts that benefited the oil industry?
Have the citys representatives learned anything since then? Apparently not. Despite Wall Streets dramatic revival from mid-2003 on, which has helped offset at least some of SarBoxs negative effects, Schumer, Clinton, and most of the citys Democratic congressional reps voted this year against extending the 2003 tax package. Schumer and Clinton even voted for an amendment that would have reinstated higher capital-gains tax rates, a move likely to bring the markets current rise to a screeching halt. Fortunately, again, the tax-cut extension passed over opposition from the New York delegation.
Even worse, the citys Democrats in Washington cant wait to take over one or both houses of Congress in order to roll back the tax package. Rangel, who would be chairman of the powerful Ways and Means Committee in a Democratic House of Representatives, said in a recent interview that he couldnt think of one Bush tax cut worth retaining.
New York officials are right to worry about Wall Street losing its place as the worlds financial capital. But representatives from the rest of the country arent likely to take seriously calls for reform from politicians like Schumer until New Yorks own Congressional delegation starts showing that they really care about whats best for Wall Streetand the citys economy.