Democrats See Green to Close Budget Gap in Hedge Fund Tax
Proposal strongly supported despite opposition from Bloomberg and Paterson
May 12th, 2008
If the peasants have no bread, said Marie Antoinette, then let them eat cake. And if the city's millionaires will not pay more taxes, say some New York City politicians, then let hedge fund partners pick up the slack.
A proposal to increase the local business tax on New York City's private equity and hedge funds has City Council members hoping that no heads will roll come tax day.
The additional money could help the city fund its expected $59 billion budget and offset declining tax revenues, estimated to fall by 6 percent next year. With both the city and state expecting dwindling revenue from taxes on Wall Street and real estate profits, politicians continue to debate what putting in a new tax might mean for an already agitated economy.
The proposal would extend the city's unincorporated business tax to include the interest from investments for hedge funds and private equity, which outpaced the profits from Wall Street banks last year. The unincorporated business tax currently extends to partners' management fees, but not to the carried interest on investments.
“As working people are paying more and more of the income in taxes, some of the wealthiest New Yorkers are not paying their fair share,” said Dan Cantor, executive director of the Working Families Party, which supports both the hedge fund tax and the shelved proposal for state tax on residents earning over $1 million. “Closing this loophole would give New York City's budget a badly needed boost.”
Economic policy experts say the plan could elevate the city's tax revenue by between $165 and $225 million a year.
“We think it's a sound tax reform proposal,” said James Parrot, chief economist for the Fiscal Policy Institute, which studied the potential results of this kind of targeted tax hike. “The consensus is that Wall Street is flat on its back and had their worst quarter in history, but private equity and hedge funds have grown a lot. Not everyone is down and out right now.”
Mayor Michael Bloomberg (Unaff.), however, has vocally denounced the plan, suggesting the tax could drive away the city's most profitable businesses virtually overnight.
“More than ever, the people that are paying a lot of the newer taxes are very mobile and they could move to someplace else very easily,” he said at a recent press conference.
Though the mayor has held fast to the goal of cutting taxes this year, giving homeowners a property tax rebate, he admitted in proposing his new budget that raising taxes—as he did in 2003—was a possibility.
A proposal for a new tax would require a Council resolution requesting action, and then a vote by the Legislature.
Assembly Member Rory Lancman (D-Queens), said he and other members of his conference may be willing to support the hedge fund tax if they feel that this would help the city close the projected gap between revenue and spending.
“If the city asks Albany for permission to tax private equity fund partners and hedge fund managers at the same rate as small business owners and entrepreneurs in order to balance its budget in a way that spreads the pain fairly among city residents and businesses, I think that idea would find broad support in Albany,” he explained.
But Assembly Speaker Sheldon Silver (D-Manhattan), who had backed the millionaire's tax, said that the hedge fund tax would only do half the job.
“The speaker thinks that a better way is through the income tax, which is the most progressive model,” said Dan Weiller, Silver's spokesperson. “He still supports the million-plus tax. It is reasonable and fair to do it that way during a difficult economic time.”
Gov. David Paterson (D) has been adamantly opposed to raising income taxes for the current budget, and has instead pushed for cuts on government spending, an idea which has brought him kudos from across the political aisle.
“The governor is not inclined to increase taxes, but he understands the fiscal situation that the state is facing,” said Morgan Hook, spokesperson for Paterson. “He isn't inclined to close a budget gap on taxpayers' backs.”
A proposal to increase the local business tax on New York City's private equity and hedge funds has City Council members hoping that no heads will roll come tax day.
The additional money could help the city fund its expected $59 billion budget and offset declining tax revenues, estimated to fall by 6 percent next year. With both the city and state expecting dwindling revenue from taxes on Wall Street and real estate profits, politicians continue to debate what putting in a new tax might mean for an already agitated economy.
The proposal would extend the city's unincorporated business tax to include the interest from investments for hedge funds and private equity, which outpaced the profits from Wall Street banks last year. The unincorporated business tax currently extends to partners' management fees, but not to the carried interest on investments.
“As working people are paying more and more of the income in taxes, some of the wealthiest New Yorkers are not paying their fair share,” said Dan Cantor, executive director of the Working Families Party, which supports both the hedge fund tax and the shelved proposal for state tax on residents earning over $1 million. “Closing this loophole would give New York City's budget a badly needed boost.”
Economic policy experts say the plan could elevate the city's tax revenue by between $165 and $225 million a year.
“We think it's a sound tax reform proposal,” said James Parrot, chief economist for the Fiscal Policy Institute, which studied the potential results of this kind of targeted tax hike. “The consensus is that Wall Street is flat on its back and had their worst quarter in history, but private equity and hedge funds have grown a lot. Not everyone is down and out right now.”
Mayor Michael Bloomberg (Unaff.), however, has vocally denounced the plan, suggesting the tax could drive away the city's most profitable businesses virtually overnight.
“More than ever, the people that are paying a lot of the newer taxes are very mobile and they could move to someplace else very easily,” he said at a recent press conference.
Though the mayor has held fast to the goal of cutting taxes this year, giving homeowners a property tax rebate, he admitted in proposing his new budget that raising taxes—as he did in 2003—was a possibility.
A proposal for a new tax would require a Council resolution requesting action, and then a vote by the Legislature.
Assembly Member Rory Lancman (D-Queens), said he and other members of his conference may be willing to support the hedge fund tax if they feel that this would help the city close the projected gap between revenue and spending.
“If the city asks Albany for permission to tax private equity fund partners and hedge fund managers at the same rate as small business owners and entrepreneurs in order to balance its budget in a way that spreads the pain fairly among city residents and businesses, I think that idea would find broad support in Albany,” he explained.
But Assembly Speaker Sheldon Silver (D-Manhattan), who had backed the millionaire's tax, said that the hedge fund tax would only do half the job.
“The speaker thinks that a better way is through the income tax, which is the most progressive model,” said Dan Weiller, Silver's spokesperson. “He still supports the million-plus tax. It is reasonable and fair to do it that way during a difficult economic time.”
Gov. David Paterson (D) has been adamantly opposed to raising income taxes for the current budget, and has instead pushed for cuts on government spending, an idea which has brought him kudos from across the political aisle.
“The governor is not inclined to increase taxes, but he understands the fiscal situation that the state is facing,” said Morgan Hook, spokesperson for Paterson. “He isn't inclined to close a budget gap on taxpayers' backs.”
