Today, the Partnership for New York City sent the following notice to the New York State Legislature.
Vaccines may signal the ultimate victory over the COVID-19 health crisis, but the economic impact of the pandemic is still rolling out in New York. The city has lost 500,000 private sector jobs since March 2020. Tens of thousands of small businesses have closed or will do so when the eviction moratorium ends, and back rent comes due, likely May 1.
The “brick and mortar” economy is unlikely to rebound for two or three years, and that recovery depends on public policies that reassure entrepreneurs, corporate office workers, and investors that New York is a good long-term bet for business to thrive. Businesses, large and small, are looking to government leaders to make restoration of jobs, not tax increases, as the top priority for 2021-22. That is not the message that Albany and the advocates of punitive tax increases has been sending.
For the next two years, New York City – the state’s primary driver of economic activity and tax revenues – will be fragile. Fewer than 15% of office workers are back in their pre-pandemic workplace and over 300,000 city residents of higher income neighborhoods have filed “change of address” with the U.S. Postal Service. New York is the #1 state in the nation for population loss. A major dislocation of New York residents and jobs has accompanied the pandemic and there is no plan to stop the hemorrhage.
In contrast, governors and mayors in Florida, Texas, North Carolina and Maryland, to name just a few, have established aggressive programs to recruit talent and attract jobs from New York to their lower cost, lower taxed regions. Literally every New York employer is being actively courted. Many are quietly opening new offices to accommodate executives who do not plan to return to New York. Just last week, Florida’s Chief Financial Officer sent a letter to the New York Stock Exchange outlining the advantages of moving to the “Sunshine State.” Miami is distributing promotional material comparing its quality-of-life metrics and taxes to New York City. While 5,000 New York City restaurants have closed, New York chefs like Marcus Samuelsson are opening new eateries in Florida.
Because we were hit earliest and hardest by the pandemic, New York will receive substantial federal aid to close fiscal gaps and bridge lost tax revenues. Our state is anticipated to receive more than $50 billion. In the comptroller’s most recent monthly cash report, the state’s tax revenues outperformed budget estimates by $1.7 billion (or 17%), primarily due to personal income tax revenues. Assuming collections continue at this pace, there is no need to raise the tax rates on high earners whose tax liabilities increased by $12 billion since 2018 because of the federal cap on deductibility of state and local taxes (SALT).
State and city revenues are dependent on a relatively small number of high earners. The top 1%, about 94,000 overwhelmingly Downstate residents, account for 42% of all state personal income tax payments. The top 5% of earners pay 62% of state personal income taxes. These high earners do not want to abandon New York, but at some point, it does not make sense to stay where the business climate is deteriorating, and costs are rising. The pandemic has demonstrated the benefits of remote work and many families have put down roots in new locations.
Business leaders do not want to publicly threaten to pull jobs out of New York, which would further damage the economy and contribute to an avalanche of small business closings and additional job losses. They are willing to have private conversations with legislators who doubt that this threat is real. Let us know if you would like to learn more.
Reference – In the News
CNBC | February 16, 2021
New York Post | February 13, 2021
Virtu Threatens to Exit N.Y. If ‘Foolish’ Finance Tax Passed
Virtu Financial Inc. is ready to pack its bags if New York lawmakers implement a financial-transaction tax.
Bloomberg Markets | February 11, 2021
A revived stock-transfer tax that is moving in Albany could force us to find a new home.
Wall Street Journal | February 9, 2021
New York Post | February 8, 2021
New York Daily News | February 4, 2021
Silicon Valley techies and Wall Street titans have bought homes and moved businesses there in the pandemic, coaxed by an eager mayor.
New York Times | January 29, 2021
Low Taxes and High Temperatures Lure Finance Firms to Miami
Blackstone and Starwood Capital Group are among those drawn to the city.
Wall Street Journal | January 5, 2021
Forbes | December 14, 2020
CNBC |October 31, 2020