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Trickle-Down Misery in NY

New York State is suffering in the wake of the recent financial meltdown. Really suffering. But fortunately for the residents of New York, their state government puts fairness first. Gov. David Patterson has just proposed an unprecedented plan for taking the financial misery of Wall Street brokerage and banking firms and spreading it evenly to everyone in his state.

In order to make up for a projected $15.4 billion budget shortfall, Gov. Patterson is proposing over 80 new taxes and fees, including taxes on digital music and entertainment downloads (a so-calld "IPod tax"), a 15% "fat tax" on soda pop and all "sugary" drinks containing less than 70% fruit juice (parents know this will include virtually every kid's drink on the market), increased liquor taxes, a $.50 cent per cigar tax, a repeal of the 8% per gallon cap on motor fuel taxes, new sales taxes for movie theaters, sporting events, taxis, buses, limousines and cable and satellite TV and radio, and on and on. Patterson also wants more video slot machines at Belmont Park, more state lottery games, an increased luxury item tax, higher state college tuition, bigger state fees, and increased state fines.

And get this -- virtually all of the money raised by these new taxes and fees rate hikes will be used to cover the projected multi-billion dollar revenue loss that the state expects as a result of the evaporation of profits and bonuses from Wall Street.

Woah! Hold on there -- I thought "Trickle Down Economics Doesn't Work!"®.

If you've fallen for that infamous bit of Democratic Party propaganda, then you should check out this AP story from almost exactly one year ago: Wall Street Bonuses Flood NYC's Economy:

When Michael Aaron learned that Wall Street investment banks were going to be shelling out record bonuses this holiday season, the savvy wine merchant uncorked his own plan to make serious dough.

He paid for a double-page advertisement in The New York Times, boasting a rare bottle of 1995 Dom Perignon. The price tag--$14,950.

"We thought we'd put this temptation out there," said Aaron, chairman of Sherry-Lehmann wine store on Madison Avenue.

The $15,000 bottle of bubbly is just one example of how record Wall Street bonuses this year can trickle through New York City's economy. People are buying multimillion-dollar apartments. They are driving $40,000 BMWs out of the showroom.

A report released Tuesday by the state comptroller said Wall Street is expected to pay out $23.9 billion in bonuses, shattering last year's record by 17 percent.

The impact of such bonuses on the New York economy is profound.

Bonuses are expected to generate $1.6 billion in tax revenues for New York state and another $500 million for New York City. For every job created on Wall Street, three other jobs are created in the city and suburbs.

"Wall Street jobs create jobs," said Ken Bleiwas, deputy comptroller. "Why? Because they are pumping money into the economy. They're going out to restaurants, they are purchasing all kinds of consumer goods."
...

"When Wall Street does well, New York City and New York state do well," Comptroller Alan Hevesi said. "Wall Street bonuses are spent in the city and in surrounding suburbs on entertainment, real estate, automobiles, and other consumer goods, all of which generates jobs and tax revenues."

Ladies and gentlemen, welcome to Supply Side Economics 101 -- more money in the private sector means more money spent by the private sector, which results in accelerated economic growth, thereby increasing tax revenues. Even though tax rates are lowered as a primary economic stimulus, the resulting economic growth always results in a net increase in the overall amount of revenues collected. The more money people spend, the more goods and services they need, which keeps people in the manufacturing and service industries working. The more money people earn, the more they pay in taxes, which keeps government coffers full, and allows the government to offer better quality services to the economically disadvantaged.

It's all just common sense, really.

Not too long ago, I heard a talk radio host ask an interesting question -- how many big businesses, if they were not forced by some sort of convention to headquarter themselves in New York City, would move out of there in a heartbeat if given the chance?

Perhaps we'll discover the answer in the next few years.

Liberals like to point out that even during times of prosperity, there are many who don't prosper, and seems as though they delight in portraying Republicans as the arch-villains responsible for exploiting as many gullible people as possible in order to enrich a select few. I am already wincing in anticipation of some newspaper columnist or Ivy League talking head officially declaring the first decade of the 21st century to be the "new decade of greed," conveniently ignoring the stock market hyjinx and accounting shenanigans of the late 1990's that provided the foundation for the expectations and attitudes that drove the real estate and mortgage frenzy of the past few years.

It is certainly true that wealth was not equally distributed in Manhattan. In light of the current market-wide financial slump, and the huge losses that average Americans have been forced to absorb, the eight-figure executive bonuses paid in recent years by firms like Goldman Sachs, Bear Sterns, Lehman Brothers, and other major financial institutions seem grossly out of touch with reality. Even the best and brightest among us can succumb to the temptations of money and power, and when their schemes implode, the results can be devastating. Just ask Bernie Madoff's clients.

But we should be careful not to let aberrations cloud the truth of basic economics. Although we often despise the wealthy, they are not universal villains. In fact, they are the backbone of our economy. We should remember this simple fact as we watch the government of New York try to endlessly "nickle and dime" all of its citizens, just so it can survive.


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Comments (25)

The author wrote:"... (Below threshold)
Grady:

The author wrote:

"And get this -- virtually all of the money raised by these new taxes and fees rate hikes will be used to cover the projected multi-billion dollar revenue loss that the state expects as a result of the evaporation of profits and bonuses from Wall Street."

1. Where did this come from? I've read many articles about this subject and saw no reference to the shortfall being related to Wall Street revenue loss. Are you just making this up or is there some authority for it.

2. The budget shortfall is also being addressed by deep cuts in the budget as well as increased taxes.

If you're going to argue a point at least be accurate with the facts.

Here's the "facts". Liberal... (Below threshold)
MPR:

Here's the "facts". Liberals never saw a tax they didn't love.

Well, Lordy be, the alterna... (Below threshold)
epador:

Well, Lordy be, the alternative would be to cut entitlements and services. Whaddya expect?

sarcaster off

Actually there are deep cut... (Below threshold)
Grady:

Actually there are deep cuts in in entitlements and services. Maybe, like the author you might want to check the actual facts first.

I've read many art... (Below threshold)
Eric:
I've read many articles about this subject and saw no reference to the shortfall being related to Wall Street revenue loss. Are you just making this up or is there some authority for it.

Grady, maybe you should read the linked article that quotes Gov. Patterson.

"This is where we are," Paterson told reporters. "Maybe we should have thought about this when we were depending on what we thought was inexhaustive collections of taxes from Wall Street - and now those taxes have fallen off a cliff."
It is unbelievable that Gov... (Below threshold)
Jeff Blogworthy:

It is unbelievable that Gov. Patterson cannot see that these taxes will only drive the NY economy further down the tubes. People will stop buying the taxed products or get them elsewhere. NY will not get the projected income and the targeted businesses (thus employees) will suffer further.

Thanks Eric.... (Below threshold)
Mike:

Thanks Eric.

Patterson did not say "virt... (Below threshold)
Grady:

Patterson did not say "virtually all" of the 15 billion deficit was caused by the loss of tax revenues from Wall Street. All I'm asking the author is to be accurate with the facts.

I'd be interested to know w... (Below threshold)
Grady:

I'd be interested to know what some of you folks who don't think taxes should be raised think should be cut from the NY budget.

It's easy, in times like this, to fall back on trickle down economic theories and argue that taxes shouldn't be raised. But it would be helpful to give some specifics about how to deal with these problems. What should be cut? How much? Why?

I always thought the upside... (Below threshold)
Pretzel Logic:

I always thought the upside to a Governor Patterson was that his Hoes will be a lot cheaper!

Probbably never going to ma... (Below threshold)
irongrampa:

Probbably never going to make a difference til you get rid of the entitlement mentality.

We talk about this a lot, and I'll unequivocally tell anyone that if services were commensurate with taxes paid, nobody'd have SQUAT to say.
Is there a lesson to be learned here?

NY, like many states, strug... (Below threshold)
Ray H.:

NY, like many states, struggled to create a balanced budget even in the best of times. Unfortunately, the idea of saving for a rainy day have gone the way of the model T and we spend every penny we have. I live in NY and the local news had a story a few days ago about NY having over 700 separate government entities. Everything from eduction to gambling to wildlife...many of which overlapped or made each other redundant. I don't think you can fix that kind of mayhem over night and what needs to happen with the current budget is an immediate need. Hopefully what they are planning on doing now will give them the time they need to make longer term fixes so this doesn't happen again. But, as it is NY, I'm not hopefully. I do know that as soon as my wife retires, we'll be moving out of this state to a place that has respect for it's residents.

There's only one 't' in Pat... (Below threshold)

There's only one 't' in Paterson, folks. Just an FYI...

How would those of you oppo... (Below threshold)
Grady:

How would those of you opposed to increasing taxes deal with the budget in NY? What cuts would you make. How much? What programs? Why?

It's real easy to recite the trickle down theory when there are unique circumstances which haven't been seen in our economy for 70 years.

What cuts would I make? Si... (Below threshold)

What cuts would I make? Simple, cut taxes. NY ranks as worst or next to worst state to do business in year in and year out. NY ranks as worst or next to worst in terms of tax burden year in and year out. We pay more for gas than any other continguous state I believe. NY is bleeding residents for these reasons - that is, bleeding PRODUCTIVE residents. Would it hurt? Yeah, at first. Just ask Reagan, his first four years weren't exactly happy days are here again. But it's not going to get any better until you lance the tax boil. In the interim you either judiciously deficit spend or do without stuff that a lot of special interests really want. Either way it's not pretty. The only difference is that this way you actually come out the other side healthy.

In other words, I'd do the one thing that has about a one in a billion chance of actually happening in this state, particularly with an unqualified accidental governor in charge.

FalzeAnother non-a... (Below threshold)
JFO:

Falze

Another non-answer to a simple question. Of course the only thing you wingers can say is "cut taxes." An easy answer but not very deep.

Raising these taxes will ac... (Below threshold)
jk:

Raising these taxes will actually result in lower income for the state. The activities taxed will be stopped by consumers, who will find untaxed substitutes or do with less. The taxed products and services will not be bought and resold, wholesale purchases and retail sales will decrease, jobs will decrease, tax income will decrease.

At this point they are just pushing down on bubbles of air (economic activity) that will pop up somewhere else, like a different state or untaxed segment.

The only way to save the state is draconian cuts to government benefits and jobs, along with some form of true economic stimulus that will result in jobs and more tax revenue.

If you want to see a state that tried to tax its way out of recession, just look at Michigan; an utter bipartisan failure of epic proportions. Michigan is having whole towns disappear as people leave. Kind of like the old upstate New York factory towns did 20+ years ago. Only now New York will loose its service industries as well.

Where to cut? Well, ... (Below threshold)
Les Nessman:

Where to cut?
Well, just for fun, let's say we 'cut', across the board, everything in the state budget by spending the exact same amount next year as we did this year.
That's right, no cuts, every state agency and state employee/retiree gets the exact same amount as before.

The state would have figure out how to get by with just as much money as it spent in the last year. Surely they could do that, right?

And yet, such a mild proposal would be met with howls of protest from the state gov't.

Gimme, gimme, gimme more.

How would those of y... (Below threshold)
SillyPuddy:


How would those of you opposed to increasing taxes deal with the budget in NY? What cuts would you make. How much? What programs? Why

Across the board 5% cut... everywhere, every department and program where such is legally possible, 10% or elimination where possible. Why? How about lack of funding.

I was reading the outrage from those in NY on another site, they bitched about everything but their own stupidity in electing turds that just keep bending them over.

If anyone is interest in the NY executive budget you can have look here:
http://publications.budget.state.ny.us/eBudget0910/agencyPresentations/appropData/index.html


In other words, NY State wa... (Below threshold)
bill-tb:

In other words, NY State wants to take your Obama middle class tax cut, all of it. But what happens if we don't get the middle class tax cut that 95% of the people were supposed to get?

As stated, cut the damn ben... (Below threshold)
jk:

As stated, cut the damn benefits, number of jobs and if necessary wages of the remaining hundreds of thousands of state employees. They don't like it, they can go find a job in the private sector with the rest of us. If stat service levels suffer, so be it. It's the cost of being in debt. Deficit effing solved Sherlock.

"Trickle Down Economics Doe... (Below threshold)

"Trickle Down Economics Doesn't Work"

I have read dozens of economics texts; I have yet to read the words trickle down economics. It is a shibboleth.

I'd love to laugh and mock ... (Below threshold)
Arthur:

I'd love to laugh and mock the tax raises in NY (and Chicago) but it's going to be almost as bad here in California.

On the bright side, we'll be seeing another demonstration of how state economies can flourish or be strangled by low or high tax rates. Did we really need another example?

As a New Yorker who uses so... (Below threshold)

As a New Yorker who uses some of the services that are on the chopping block I was prepared to deal with that and make do with less. I was not prepared for and will do my best to protest the nickle and diming to death the average New Yorker with these raised fees and new taxes on just about everything.

"Ladies and gentlemen, welc... (Below threshold)

"Ladies and gentlemen, welcome to Supply Side Economics 101 -- more money in the private sector means more money spent by the private sector, which results in accelerated economic growth, thereby increasing tax revenues. Even though tax rates are lowered as a primary economic stimulus, the resulting economic growth always results in a net increase in the overall amount of revenues collected."

The opposite is also true. Increasing rates drives tax-avoidance behavior and collections fall. The consequence is that these taxes will fall short and the long term consequences will be to reduce economic growth and long-term collections as well.




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