A prospect to sicken any good Demmerkrat

Pray for big bank bonuses, the bigger the better.

If you are a taxpayer in the Northeast, here is some advice: Get down on a knee, clasp your hands and pray.

Pray for banker bonuses this year. Big ones. Cash, preferably.

New York’s state government, and its dysfunctional neighbors in New Jersey and Connecticut, already are in deep financial crisis. Without the tax revenue from Wall Street pay and bonuses, they could find themselves closer to the brink.

Like much of America, you may find the idea of big banker paydays unsettling. After all, it was taxpayers who saved Wall Street’s hide. Even now, the finance industry’s nose-in-the-air entitlement makes taxpayers feel all the more enraged over the bailouts.

But in the same way banks became addicted to mortgage-backed securities and collateralized debt obligations, so did state and local governments rely heavily on financial-sector wealth. In the broadest sense, the last decade turned the entire Northeast into bankers and traders, all waiting for that bonus check.

Thirty years ago, the securities industry generated less than 3% of all private-sector salaries and wages in New York state, according to E.J. McMahon of the Empire Center for New York State Policy, part of the Manhattan Institute, a conservative think tank. By 2007, these wages accounted for nearly 20% of the total. Similarly, one in five New York state tax dollars came from Wall Street. In New Jersey, the effects were the same: Its income-tax receipts nearly doubled between 2002 and 2007, in large part because of the great credit boom.

 

But there was more going on: Much as home building and mortgages helped carry the U.S. economy, Wall Street’s apparent successes also hid the structural cracks developing elsewhere. Since 1990, New York state’s manufacturing jobs have dropped by about half, a total loss of about 500,000. Those losses came at double the rate nationally, Mr. McMahon said.

Wall Street beautifully, profligately, bridged the tax gap, until it didn’t. “Those days are gone,” said New York state Comptroller Thomas DiNapoli in an interview. The effects of Wall Street compensation changes, less cash and more long-term stock grants, remain hard to quantify, he said.

Today, New York, New Jersey and Connecticut all face budget crises they seem incapable of taming. New York Gov. David Paterson called for a special session, to be held Tuesday, to address the state’s $3.2 billion budget deficit. That number is expected to increase nearly sixfold by 2013. New Jersey Gov. Jon Corzine was rejected by voters last week, in part because of his inability to tame a budget deficit expected to reach $5 billion next year. Connecticut’s state budget already is an estimated $600 million behind projections from last spring.

“It’s understandable that Main Street would be upset that the industry pays high compensation,” said Ken Bleiwas, New York state’s deputy comptroller for New York City. “But those payments help support jobs in other industries. We’re all connected.”

If Wall Street cut bonuses, the banks would be more profitable and pay more taxes. But state officials know that corporations pay taxes at far lower rates than individuals.

A more sensible approach would be to reshape the regional economy away from Wall Street, and budget without expectations of an annual financial-sector windfall. But the money is too big, and too easy, to resist for the time being. That is why across the region, the prayers for big bonuses continue to float to the sky. If you have a moment, you should add yours. We are all bankers now, whether we like it or not.

4 Comments

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4 responses to “A prospect to sicken any good Demmerkrat

  1. Cos Cobber

    I said the same thing months ago with the stock market rally started.

  2. Anonymous

    Top 1% of taxpayers in NYC/CA/CT pay ~50% of all taxes

    Many of top 1% are financiers…hedgies, PE, VC or IBers…or engineers selling tech cos. or blocks of stock for large cap gains

    “Wall Street” (or SiliconValley) is inextricably tied to MainSt, no matter that Wall Street largely resides in Midtown or Greenwich or SiliconValley these days….and will flee to Dallas or Geneva if unduly taxed or abused by the nonproductive, welfare-recipient classes of NY/CA/CT who ultimately depend upon tax revs, donations and spending of the wealth-creating classes

  3. Arouet

    I knew this was the WSJ before I even clicked the link. More trickle-down. If you have very few people taking home a big percentage of a growing pie, then you buy social stability by taxing those few people and redistributing the gains in the form of schools, law enforcement, sanitation, health clinics, etc. “But you want to make us Canada/Old Europe!” the WSJ cries.

    Well they want to make us Brazil, Mexico, South Africa. Take your pick.

    I never have understood people who can be convinced that the hedgies benefit from the system less than the EMTs, electricians, and daycare workers because they have to pay more taxes.

  4. Cos Cobber

    Well Arouet, all I am saying is that since the darn tax code is so progressive, you have to cheer for large bonuses otherwise if you let the money trickle down then uncle sam gets far less and budget holes persist.

    I’m not advocating higher taxes…but when you review the litny of deductions created for households with incomes under 100k, they are actually doing quite well on this issue of taxes.