Tuesday, January 17, 2012

Developing story - re: NYS tax receipts

This news is just out today but the Wall Street Journal is reporting that "that Morgan Stanley will cap cash bonuses at $125,000 and "will defer the portion of any bonus past $125,000 until December 2012 and December 2013".

Now for mere mortals a bonus of $125,000 pre-tax would seem like a gift from above, but for the Wall Street crowd $70k after tax is barely going to cover the down payment on their new Lamborghini Gallardo.  The deferred comp will still be nice for these heavy hitters but here are the potential fallouts that I see....

* Many of these people that are capable of making $1 - $5 million/year will start to flood the hedge fund industry.  This means many people that formerly worked in Manhattan will be moving their $5 million salaries and their associated spending to hedge funds around the US - CT, CA, etc.  This will have a negative long-term impact on state revenues in NY State.

* The timing of this news has to be making some people really sweat in Governor Cuomo's office.  The Governor is set to release his budget today and that is premised on certain assumptions for Wall Street salaries/bonuses and their associated taxes.  However, if all of Wall Street decides to follow this model of capping cash payouts NY State could be in a world of hurt in 2012 as revenues start to dry up. 

* Finally, the reduction of tax revenues at the Federal level could have a huge impact on the 2012 Presidential race.  The initial expansion of the Federal debt ceiling was designed to get the country through to January or February 2013.  However, revenues have been a bit behind expectations and spending has been a bit above projections.  Right now the best guess is that we'll be bumping up against the debt ceiling in late November 2013 or December 2013.  However, if Wall Street cash bonuses are limited there is a chance we could hit the debt ceiling in October.  If that were to happen imagine the chaos that would create in the late stages of the Presidential campaign.