ALBANY — Rank-and-file legislators are preparing a bill to raise billions of dollars through a small tax on stock trades to avoid potential deep cuts in education and health care and higher taxes forced by the state’s lost revenue from the COVID-19 emergency.
“We are in a desperate financial situation,” said Joseph E. Stiglitz, an economics professor at Columbia University who won the Nobel Prize in 2001.
“If we don’t find additional sources of revenue, we are looking at devastation of the public sector at the state and local level that will have very serious consequences for our productivity and our society,” Stiglitz said at a recent legislative roundtable discussion.
The tax would be 5 cents for a stock sold for $20 or more per share, according to the state Department of Taxation and Finance. The tax is already on the books, but hasn’t been collected since 1981 after Wall Street firms threatened to leave New York for lower taxes in New Jersey.
The new measure has more than 100 supporters in the legislature so far, said the bill’s sponsor, Assemb. Phil Steck (D-Loudonville). He said the tax would average $13 billion a year in revenue and that similar measures are in place in the London and Hong Kong exchanges.
The new proposal hasn’t received the support of Gov. Andrew M. Cuomo or legislative leaders, or from the independent Citizens Budget Commission. They said they fear it would prompt Wall Street firms to leave New York for other cities or trade exclusively online, decimating one of the state’s biggest industries and revenue sources. That projected revenue also varies widely each year — from $16 billion in 2008 to $4 billion in 2019 — which creates uncertainty, experts said.
“The advent of the internet and online trading have enabled stock traders to engage in their livelihood from anywhere in the world,” said David Friedfel of the Citizens Budget Commission. “If only trades that go through New York exchanges are subject to the tax, it will put New York-based traders at a competitive disadvantage and provide an incentive for them to conduct business outside of New York state.”
He said in 2019, the securities industry accounted for 17% of state tax revenues and 6% of New York City tax collections.
The tax also would slightly increase the costs for New Yorkers with 401(k) retirement plans invested in the stock market and, potentially, in state pension fund investments, although supporters say the pension fund could be exempted from the tax.
“If the bill passes, we’ll review it,” said Cuomo’s budget spokesman, Freeman Klopett. “In the digital age it would be even easier for transactions to simply be moved out of state to avoid the tax.”
The economists in the legislative roundtable said there is no evidence that Wall Street firms would move over such a small tax paid by traders, not the firms, and that many online transactions also could be taxed.
Steck said the tax is so small to Wall Street firms that it would be “like a flea on the back of an elephant.”
“The firms don’t pay this tax. It’s the buyers and sellers who pay for it,” Steck said. “The firms would incur extraordinary expenses to move to avoid a tax they don’t pay.”
Cuomo, Assembly Speaker Carl Heastie and Senate Majority Leader Andrea Stewart-Cousins didn’t immediately respond to requests for comment.
Cuomo has focused instead on lobbying for billions in federal stimulus aid to fill what he said Monday is a $30 billion state deficit.
But supporters say if Wall Street doesn’t pay a little more, New Yorkers will have to pay a greater price in income and property taxes and in lost services that could hurt the economy for years.
“You are taking revenue and giving it to the financial sector,” Stiglitz said. “In a time of need, is that the highest priority?”
What is the stock transfer tax?
New York’s stock transfer tax has been a law since 1905.
But it hasn't been collected since 1981.
It was used to help New York City's economic recovery, but was suspended after Wall Street firms threatened to move to New Jersey. The tax rate is graduated: from 1.25 cents per share for stocks selling at under $5 per share to 5 cents per share for stocks that sell for $20 or more per share.