David and Ruby had a once in a lifetime windfall earning themselves a $600,000 long term capital gain. When I told them that their federal tax liability on this gain was $100,000 they accepted this as the price ofliving in the U.S. But when I told them that their NY State and City tax on this gain was $80,000 they were dumbfounded. After all, David said, wasn’t the NY State and City tax usually 1/3 or less of the federal tax?
Yes usually. But NY State and City have been taking advantage of its most productive residents in a most underhanded way. Agricultural states give benefits to their farmers, and oil states give benefits to their producers, but NY State and City gouge their successful Wall Street investors.
When in 2003, Congress reduced the maximum on capital gains and qualified dividends from 35% to 15%, this portended a huge windfall for the securities industry so much of which is located – and pays huge taxes to – the State and City of New York.
But in (in) actions of unfathomable and irresponsible greed, neither the State nor the City legislatures made any corresponding reductions in their tax rates. Unfathomable because it led to the ridiculous relationship that David and Ruby experienced causing them to wonder if they should continue to stay in New York. Irresponsible in that it accelerated the move of the securities industry out of New York.
Although it’s true that New York securities industry profits are now higher than ever before, it is happening despite a steadily decreasing portion of this industry operating from New York. And when the industry returns to more normal time, we will sorely miss the business that was chased away by New York’s anti-securities industry tax policy.
NY’s US Senators and Congressmen decried (and voted against) the tax rate cuts on capital gains and dividends that did so much for Wall Street and the jobs it creates. The rate cuts passed anyway, leading to prosperity and surplus for the local economy.
However, these cuts are slated to expire in 2010 and New York State’s representatives keep taking about increasing rates on those involved in New York’s bedrock industry.