An opinion piece in Tuesday’s 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 Street’s—and New York’s—future, 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 legislation’s complex new auditing and reporting requirements have so increased the cost of being—and becoming—a 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 world’s 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.
It’s good to see the mayor and the senator calling for reform of SarBox. Yet it’s hard to take Schumer seriously, considering that he, New York’s other senator, Hillary Clinton, and virtually all of the city’s Democratic congressional delegation have consistently voted against any federal legislation that’s 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 Street—driving the stock market higher, increasing investment firms’ profits and employee bonuses, and pouring billions of additional tax dollars into Gotham’s coffers. In 2003 alone, the city collected an estimated $1 billion more in taxes than it had anticipated, mostly thanks to Wall Street’s robust revival. That revival is perhaps the single most important event in New York’s post-9/11 fiscal and economic recovery. Yet every member of New York’s 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.
It’s not as if the city’s 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 city’s 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 cuts—a call that the city’s 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.
Harlem’s Representative Charles Rangel showed best how clueless New York’s 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 city’s representatives learned anything since then? Apparently not. Despite Wall Street’s dramatic revival from mid-2003 on, which has helped offset at least some of SarBox’s negative effects, Schumer, Clinton, and most of the city’s 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 market’s current rise to a screeching halt. Fortunately, again, the tax-cut extension passed over opposition from the New York delegation.
Even worse, the city’s Democrats in Washington can’t 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 couldn’t think of one Bush tax cut worth retaining.
New York officials are right to worry about Wall Street losing its place as the world’s financial capital. But representatives from the rest of the country aren’t likely to take seriously calls for reform from politicians like Schumer until New York’s own Congressional delegation starts showing that they really care about what’s best for Wall Street—and the city’s economy.