ALBANY, N.Y. (AP) — Gov. Andrew Cuomo’s proposal to simplify New York bank taxes contains a provision that would let Manhattan’s big investment banks pay taxes on only 8 percent of their securities income, which some critics call a gift to Wall Street.
That provision would apply to revenues from dealing and trading in stocks, bonds, options, derivatives, currency contracts and other financial instruments, and not from lending, most banks’ biggest line of business.
It assumes that about 8 percent of securities income for New York banks comes from New York business, the rest from elsewhere, based on a formula.
According to the Cuomo administration, the changes will boost New York jobs, simplify the state’s complex tax structure and help end lengthy, expensive disputes between banks and tax collectors on what constitutes taxable revenue. The measure would also repeal some tax benefits, they said.
James Parrott, Fiscal Policy Institute chief economist, said New York’s share of investment banking is about 39 percent. Parrott, a member of one of the recent commissions examining possible tax reforms, said 8 percent in this instance “seems arbitrary” and should be justified.
“It could be much higher than that,” Parrott said. “Once you pass the legislation, you’ll never have an opportunity to revisit that in the practical political world of tax politics. It’s gone.”
New Yorkers for Fiscal Fairness called the proposal “a big gift to Wall Street.” Executive Director Ron Deutsch said it gives “hundreds of millions in tax cuts to … the very same banks that helped create the fiscal crisis that led to the Great Recession in the first place.”
Administration officials disagreed with the criticism.
Cuomo spokesman Matt Wing said the provision “is based on specific customer-based financial transactions, not bank income, which in many instances would mean banks would pay more taxes to New York State, not less.”
The provision says “8 percent of all net income from qualified financial instruments” could be used in apportioning taxable income for that portion of bank business. Alternatively, the banks could calculate those “receipts and net gains” depending on where customers are located.
James Wetzler, former state tax commissioner who served on two recent state panels that examined tax reform, said the fixed percentage method would apply to securities and commodities dealing and trading and not the larger share of bank business in lending and fees. He said some big New York investment banks do “a huge amount” of securities business worldwide, and it will be clearer with experience whether 8 percent is too low or too high, but he thinks it’s “reasonably close.”
“Economic development strategy is the main purpose of this,” Wetzler said. “It will be a tax cut for New York State banks. It will be a tax increase for out-of-state banks.”
Business groups said it was only a small part of broader proposed state business and bank tax simplification and cuts like many other states have adopted. The Public Policy Institute of the Business Council of New York State in an analysis estimated the changes, including cutting the corporate franchise tax from 7.1 percent to 6.5 percent, would increase total employment by 14,100 jobs by 2019, including 8.1 percent growth in financial services, and raise personal income by $1.3 billion.
The Securities Industry and Financial Markets Association, in a December letter to Cuomo, commended his efforts at corporate tax reform “and efforts to ensure New York becomes a more competitive and advantageous place to do business.”
The Assembly included the measure in its budget proposal Wednesday but would leave the corporate tax at 7.1 percent.
State Sen. Jeff Klein, co-leader of that chamber’s majority coalition, said they rejected “corporate giveaway,” which he estimated would cost $350 million, from their budget proposal, which was still being negotiated Thursday afternoon. The administration has estimated the cost of the corporate tax revisions overall at $205 million in 2015.
Legislators and the governor are expected to negotiate a final budget and tax provisions, beginning with their respective proposals, before the new fiscal year starts April 1.