Tuesday, October 06, 2009

NY's Budget Woes Picking Up Steam

NY continues to face the double whammy of rising costs and falling revenues. I think even the most pessimistic budget observer would not have predicted that tax receipts would fall 36%. According to Bloomberg....

"New York State’s income tax revenue has dropped 36 percent from the same period in 2008, Governor David Paterson said, “frustrating” his attempt to close a projected $2.1 billion budget deficit.

“We added personal income tax, which we thought would make the falloff 10 percent to 15 percent,” Paterson, a Democrat, said on CNBC today, referring to $5.2 billion in new or increased taxes. “This is what is so frustrating. It’s still 36 percent, meaning our revenues fell more in 2009 than they did in 2008.”

Unfortunately, despite all of the promises to the contrary this means some combination of higher taxes, layoffs and fewer services. I'll note however, that Wall Street profits and bonuses should be much stronger in 2009 and that will cushion the blow to next year's budget.

New York and New Jersey face a real challenge trying to retain their upper middle class as a result of the financial crisis. The crisis has forced many individuals to look at their personal budgets line by line and many are now realizing that career opportunities outside of the tristate region may be best for their own bottom line. A list of counties paying the highest property taxes in the US reveals 10 out of the top 10 are in NY and NJ.

This story of a family relocating out of NJ to SC will continue to be a popular theme. The real problem comes when you reach a tipping point and a critical mass of citizens leaves the state.
"They sold their home in Denville for $469,000 and purchased a house in Lake Wylie, S.C. that’s twice the size for $400,000. They traded 2-1/4 bedrooms and 1-1/4 baths for four bedrooms and four bathrooms. And they gave up a property tax bill of close to $10,000 a year for one that’s about $1,900.
They may be part of a trend, people moving out of the state because of high taxes and housing prices that remain inflated, even in a poor economy.…From 2000 to 2008, nearly 800,000 households moved from New Jersey to another state, taking $57.7 billion in adjusted gross income out of New Jersey, according to data from the IRS. The dollars for those years were adjusted for inflation."


Anonymous said...

There seems to be a misperception that AUS raising their rate to flight inflation, is the same thing as an economic rebound. Inflation as an indicator of economic prosperity went out with outsourcing jobs to cheaper labor markets. You can now have one without the other. That being said, perhaps some equities are a safe haven if they are purchased with US dollars As the dollar continues to fall, the equities may rise in lockstep just to maintain parity.


Anonymous said...

It's time to legalize and regulate the following:

Prostitution-Just think of the lost tax dollars from those hypocritical politicians alone.

Gambling-cultivating maze isn't the only thing we could learn from our Native American neighbors.

Marijuana- Stop the ridiculous prohibition on a relatively benign drug (compared with those that are legal, regulated, and TAXED). Regulate and generate revenue by selling permits to grow limited amounts at your residence. And most importantly, stop wasting valuable law enforcement resources.

Anonymous said...

Im wit you maaannn.

Powweer to da peeeople, man..

The hermit said...

tax and spend, what do you expect?

The Artful Blogger said...

It's a good point re: falling dollars and the relationship to equities. The disconnect between reality and equity performance is getting extreme but it can stay extreme for a long time.

Re: the new tax sources proposed by anonymous #2. Prostitution will never happen. It's not really a big enough industry to bother legalizing. Gambling causes enough social ills that it more than offsets any tax revenues generated.

However, legalization has some economic merit. The legalization campaigners are going about it all wrong though. They are thinking too small. They need to go to big pharma, big ag, and big tobacco. Offer them a near monopoly and get the power of the pharmaceutial, farm and tobacco lobbists behind them.

The cost savings from eliminating jail time for possession would be substantial, however, the prison lobby would argue against such a move, but it's outside the box thinking.