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Phil Steck on the New York Stock Transfer Tax and Moving the Computers to New Jersey

If you activate the New York stock transfer tax, Wall Street will simply move the trading computers to New Jersey to avoid the tax.

Phil Steck
New York State Assembly
Albany, New York

You still hear that in the halls of the legislature in Albany.

One problem says New York Assemblyman Phil Steck – the computers are already in New Jersey.

Steck has introduced legislation that would activate the tax and bring in an additional $13 billion in revenue – $13 billion that would plug the $13 billion deficit hole currently facing New York.

Does Wall Street threaten to move to New Jersey?

“They made the threat in 1905 and it didn’t happen and volume on the exchange kept going up,” Steck told Corporate Crime Reporter in an interview last week. “The tax is set at an appropriately low rate. And it’s not going to deter anything. They would have to pick up all of their offices, lock stock and barrel, and the exchange, and move them somewhere to avoid a tax they don’t pay. There is no logic to it.”

What is the stock transfer tax – also known as the financial transaction tax?

“In 1905, under a Republican administration, a sales tax on the sale of stocks and bonds was passed in New York. The Republican Party historically favored a sales tax as opposed to a property tax or an income tax. That stock transfer tax is a sales tax.”

“The tax existed from 1905 until 1981. In the late 1970s, it was being phased out. The tax revenue was diverted to help New York City get out of its financial crisis. Then, when the financial crisis ended, at that time in the late 1970s, Wall Street wasn’t the juggernaut that it is today. And the Mayor at the time, Abraham Beame, was afraid that that industry would be lost if the tax continued. He recommended that the state leave the tax on the books so that it’s calculated, but it’s not actually collected. It is supposed to be a 100 percent rebate. But as I understand it, it is recorded so that the state would know how much they would collect if they needed it. But it is not actually taken in and then returned.”

Your bill would collect the tax?

“Yes.”

How much would your bill raise?

“The thing about the stock transfer tax is that it is counter cyclical. It doesn’t raise as much money in good times. But that’s actually fine, because in good times people pay more sales tax than personal income tax. They can also afford to pay property taxes more easily.”

“In good economic times, people tend to hold their investments for the longer term. There is not as much trading. It is trading that triggers the tax. When you have an economic downturn and there is a flurry of selling or buying and selling, that’s when the stock transfer tax revenue rise. My legislative director believes it would have brought in $16 billion through this time period. But looking over the last years, we were predicting on average $13 billion a year.”

“Also, the tax does need to be updated. There were a lot of financial transactions that didn’t exist in 1905 that could be subject to the tax.”

What is the argument against the tax?

“You will get a complaint from the industry – oh, if you impose the tax, they will move their computers that actually do the trading to New Jersey to avoid the tax.”

“One problem – the computers are already in New Jersey. The tax has nothing to do with the computers. And second, the Supreme Court in the Wayfair decision ruled that you don’t have to have a transaction physically located in a state for it to be taxable there.”

What’s the jurisdiction for the tax?

“The brokerage firms and the exchanges are located in New York.”

How much is the tax?

“It comes to a quarter of one percent. If I purchase $20,000 of securities in a year in my 401(k) plan, my stock transfer tax would be $50. And I am paying a lot more in asset management fees, brokerage fees and financial advisor fees than anything approaching the stock transfer tax. The idea that it is somehow burdensome on the industry is absurd.”

“It is a sales tax. If the government puts a sales tax of 20 percent on a product, what harms the merchants is the idea that people might not buy that product because of the cost. But if the sales tax is a reasonable tax, people are going to buy the product anyway. The merchant isn’t hurt. And the merchant doesn’t pay the tax – the merchant just collects the money and gives it to the government. In the case of the stock transfer tax, none of the financial institutions pay it. They just collect it from their customers. And if the tax is low enough, it has no appreciable deterrent effect on people buying and selling securities.”

“Many economists have mentioned a positive effect. It does discourage day traders. And day trading is not considered beneficial for economic reasons. It’s more like gambling.”

“In Hong Kong, for example, they have a financial transaction tax. And as a result, they have less of that type of frequent trading behavior than we have here in this country.”

Even Wall Street people like Robert Rubin support it. Given that, what is Governor Cuomo’s problem with it?

“Andrew Cuomo came of age politically in the Clinton years. And Bill Clinton’s point of view was – we have to be more like Ronald Reagan to elect Democrats. And Andrew Cuomo thinks that’s the way the government should run. I think that’s 40 years out of date.”

Has Cuomo spoken about it recently?

“He was asked about it recently and all he said was – that he hadn’t seen Ralph Nader’s comments in the Buffalo News on it.”

“Every time you raise this in the Assembly, you get the argument – well, they will just move the computers to New Jersey. And of course, the computers are already in New Jersey.”

“People running state government who influence policy unfortunately either just haven’t left 1980 behind or some of them come out of the industry. If those are the only voices you are listening to, it’s difficult to get a more balanced viewpoint. I’ve been trying to urge the Assembly to have a policy analyst take another look at it and look at some of the more recent literature on it.”

“Many economists support this – Jeffrey Sachs and Joseph Stiglitz among them.”

What is the outlook for this bill?

“It’s too early to tell. It’s difficult. The Governor’s economic philosophy has been very conservative. In the last session, there were proposals to have a billionaire’s tax. There was a proposal called the pied a terre tax. That would be a tax on people who have residences in New York City but who don’t actually live there. There was a tax on stock buybacks. Some of the progressive groups were saying – we can’t get the stock transfer tax, so we will try and get these other taxes. But that didn’t work either because of the conservatism of the Governor and the Democratic Senate thinking that a tax increase would jeopardize their majority.”

“But conditions have changed. What’s more damaging now is massive budget cuts, particularly for education.”

Does the passage of your bill set a precedent for a federal stock transfer tax?

“I don’t know where the federal government is headed politically.”

You would favor such federal legislation.

“Yes. But New York needs to have its own tax. This all plays into the whole tax structure of the country. And the Governor is correct on this. New York State loses about 25 percent of the tax revenue it raises for the federal government – it goes into poorer states, states with more military installations.”

“States like Texas, Alaska, and North Dakota have oil, which New York doesn’t have, charge us an excise tax to bring oil to the state of New York. That enables those states to keep their taxes lower.”

“Most of the people who trade on Wall Street aren’t from New York or the United States. It offsets that outflow of tax money that is a real problem for the state of New York. If the federal government also imposes a stock transfer tax later on, what the appropriate percentage for the states or the federal government could be addressed at that time.”

“But we have tremendous needs, not only on an emergency basis, but the condition of our infrastructure is terrible. It goes back to the whole philosophy of the federal government since 1980 – we are going to cut aid to the states and increase military spending. Then when there is little or no aid for sewer or highway coming in from the federal government, the states have a choice. Either they can increase taxes, or they can let it go to hell. And for the most part, they have let it go to hell.”

[For the complete q/a format Interview with Phil Steck, 34 Corporate Crime Reporter 18(12), May 11, 2020, print edition only.]

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