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New York State Tax Revenues Slump 36%, Is New York The Next California?

Tyler Durden's picture




 

New York State is quickly becoming the next California, as tax revenues drop 36% from 2008 levels, and a dejected governor expressing his frustration with policy measures that continue to not bear fruit. As a reminder the state most reliant on the financial sector, is struggling with a $2.1 billion budget deficit that is still looming despite tax increases, federal aid and spending cuts.

From 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.”

The budget will still be $2.1 billion in deficit because
spending plans exceed revenue projections, the state Division of
Budget said July 30. The report predicted deficits of $4.62
billion in 2011, $13.3 billion in 2012 and $18.2 billion in
2013.

The Governor, who has recently had a major falling out with President Obama, may be in even more hot water as hopes for major tax windfalls from corporate taxes vanish due to generous NOLs established during last year's financial collapse:

“We are Ground Zero for the economic recession,” said
Paterson. “What we’re recognizing now is what everybody
recognizes in their own portfolio: you can’t overinvest in one
area because, if it fails, you’ll have a debacle.”

New York is depleting its options for balancing the budget,
Paterson said.

“What we want to do is bring the legislature back as soon
as possible and make the tough decisions,” Paterson said.

Alas expenses tend to be much "stickier" than revenues, meaning that even much more drastic cost cutting will likely still leave the state at the mercy of Federal handouts. And if California's IOU experiment is any indication, Paterson may want to promptly get on the President's good side before he is forced to ask for much needed assistance.

Also, another issue that is not receiving much airtime is the continued dire straits that New York's MTA finds itself in. From the most recent status update: "the program has a funding gap of $9.9 billion despite a large increase in State aid and a 56 percent increase in anticipated federal funding, which may not materialize. In the absence of additional aid, the MTA plans to fill the gap with debt, but debt service would then rise rapidly and increase pressure in the future to raise fares and tolls." Yet another aspect of the state economy that is intimately linked with well-bid debt markets, which in turn track the equity market tick for tick, explaining once again how much the administration has staked on a stock market that, miraculously, is not allowed to leg lower by any material amount. However, as long as analyst actions, such as today's by Goldman in which it effectively upgraded itself, continue to drive markets, the plan to keep equities at untenable and fundamentally unjustified levels, will be viable to keep the economy running. Even if it is based on smoke and mirrors.

 

 

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Mon, 10/05/2009 - 13:12 | 88951 Project Mayhem
Project Mayhem's picture

Hmmm is America the next Argentina?  ;)

 

 

Speaking of Argentina. . . One little interesting tidbit from  FOFOA... Argentina CPI went negative prior to currency collapse.

 

Lesson:  Failed states exhibit nonlinear dynamics.

 

http://fofoa.blogspot.com 

Mon, 10/05/2009 - 13:40 | 88969 lovejoy
lovejoy's picture

Not the best comparison. Argentina's debt was not in their own currency. Having debt in USD killed them. USA has all its debt in USD, so it has far greater control on cash/currency flows.

Mon, 10/05/2009 - 14:19 | 89022 Charley
Charley's picture

So, what you're saying is: Argentina had debt denominated in dollars, so the world economy could escape unscathed even though Argentinians suffered. But, we have debt denominated in our own currency, so any attempt to adjust our imbalances will be the same as a massive global liquidity freeze, which will pull the world economy down with us.

Okay, now I understand...

Mon, 10/05/2009 - 15:16 | 89078 Anonymous
Anonymous's picture

Comparisons to Argentina are way off base, other than that in the US -- like Argentina -- global creditors recklessly/intentionally kept feeding the beast knowing/hoping that they would get bailed out.

For one, Argentina had a currency board which limited, by reference to an observable figure (currency reserves), the ability of the Central Bank to print pesos. The US can print as many dollars as it wants. The currency board itself is a difference -- the US has already devalued its dollar significantly, whereas pressure on the AR board just kept building until it snapped (nevermind the fact that the peso was tied only to the dollar, which was rising against the other trading partners of AR during the late 90's making Argentina even more expensive vis a vis, e.g., Western Europe). Another difference is there are plenty of countries that are implicitly or explicitly dollarized, whereas no countries were AR pesoized. It's much harder to devalue when so many countries are tied to you, especially countries like China that hold so much of your debt.

Don't get me wrong, I wish the US would be forced to take the extreme measures Argentina was forced to take, but that will never happen -- we'll just keep floating in perpetual zombie land.

Mon, 10/05/2009 - 16:38 | 89186 ZerOhead
ZerOhead's picture

Until we sink...

Mon, 10/05/2009 - 19:52 | 89379 Anonymous
Anonymous's picture

Good point.

I have no understanding of it all but if the Yuan is pegged to the dollar and as the dollar continues to collapse then by definition the yuan will follow to a an order magnitude equal to the variance between what it should be and what it is pegged to, right?

If China continues to intentionally deflate their currency to keep it in proximity to the dollar as it falls, then as a weaker currency encourages export and discourages imports, selling cheaper and buying dearer, then the fact that China's currency is already being artificially restrained it's not the US that runs the risk of severe implications, is it?

It would seem that if they attempt or are forced to decouple they will be even worse off than if they continue to go along for the ride.

Mon, 10/05/2009 - 20:31 | 89437 lovejoy
lovejoy's picture

Ditto mate or lass!

Mon, 10/05/2009 - 22:45 | 89582 Charley
Charley's picture

Permit me to disagree: The Argentine Crisis is absolutely apropos, since it was resolved by a massive cut in the living standards of the population, secondary to the devaluation of the currency against the dollar. This allowed for the reduction in imports and for an export led recovery.

If we apply this method to the US we get this: US imports fall, and, therefore, the exports of all exporters fall with it - end of the global economy. Hence, exporters are driven to prop up the dollar by devaluing their currency along with the dollar, or must adjust their entire economies to re-direct the surplus output elsewhere, or eliminate it.

In the latter case there is still deflation, but the brunt of the adjustment occurs externally to the US - we export deflation. In either case, existing inventories and capital must be devalued.

Resolution of the crisis is impossible short of this.

Mon, 10/05/2009 - 13:41 | 88973 VegasBD
VegasBD's picture

clever

Mon, 10/05/2009 - 19:11 | 89338 Hephasteus
Hephasteus's picture

And russia ponzi schemed bonds to pay for bonds right before thier currency collapse. Which looks like what we are doing to me.

Mon, 10/05/2009 - 13:15 | 88955 Paul S.
Paul S.'s picture

New York Individual Income Tax Rates, 2009

New York    4% > $0
        4.5% > $8,000
        5.25% > $11,000
        5.9% > $13,000
        6.85% > $20,000
        7.85% > $200,000
        8.97% > $500,000

New York Individual Income Tax Rates, 2008

New York    4% > $0
        4.5% > $8,000
        5.25% > $11,000
        5.9% > $13,000
        6.85% > $20,000

Huh.  Wonder where those additional revenues went.

Mon, 10/05/2009 - 13:17 | 88957 Anonymous
Anonymous's picture

Anthony R. Wood, "Homeowners are challenging property-tax assessments at a record rate," Philadelphia Inquirer, 3 October 2009:

"With the ebbing of the real estate market, a record-bursting tide of property-tax appeals is inundating assessment offices all over the region - and the nation - with appeal numbers double and triple what they were last year.

What is happening locally 'is a microcosm of the whole country,' said John Garippa, a New Jersey tax lawyer and president of the American Property Tax Counsel in Chicago. 'It's an incredible, incredible number of appeals.'"

[http://www.philly.com/philly/news/breaking/20091004_Homeowners_are_chall...]

Mon, 10/05/2009 - 14:23 | 89027 Anonymous
Anonymous's picture

Let them challenge their assessment. It won't make a
difference since the local gov will simply raise the
tax rate for everybody. In NY the buck stops with the
poor SOB that owns property.

Mon, 10/05/2009 - 13:28 | 88962 Bryan
Bryan's picture

Nah, they'll just stealthily raise taxes to cover it. 

Hunting/fishing fees just took a big jump this year.  Fuel

taxes are some of the highest in the country, and no

doubt will go higher.  But by God we have the best

programs available for all you new illegal aliens... y'all come

now, ya hear?!

 

Mon, 10/05/2009 - 13:45 | 88974 D.O.D.
D.O.D.'s picture

"But by God we have the best programs available for all you new illegal aliens... y'all come now, ya hear?!"

Agreed, if only we had the same programs availible for citizens.  People might actually be using it in their new found free time...which I would hazzard to guess would mean jobs in the medical field... but employment is a lagging indicator anyway, prolly not important...

Mon, 10/05/2009 - 13:30 | 88964 Anonymous
Anonymous's picture

$2.1 billion budget deficit? Tax revenue from the Goldman bonuses alone will take care of that.

Mon, 10/05/2009 - 14:14 | 89014 Miles Kendig
Miles Kendig's picture

That 2.1 will grow to 3+ by next summer. So, Albany had better work to a goal of at least 3 and be ready for more.  Time for some real cost cutting rather than just playing around the edges.  As far as the MTA is concerned it needs to be self sufficient anyway. Why depend on the fed to finance it? That is the job of the folks that use the system.

The chances of passing another 800 billion stimulus is next to zero so the states that got all that federal money this year had better realize that there will most likely be no repeat this next year and plan accordingly.  State expenses are a state responsibility.

Mon, 10/05/2009 - 14:23 | 89025 deadhead
deadhead's picture

New York has been broke for years.

You guys in other states would not believe the property tax burden.

for those who follow real estate, i don't need to tell you about the infamous New York mortgage tax....yep, NY takes you on money you borrow and at a hefty rate I might add.

New York is a financial piece of shit...I've lived here all 50+ yrs.  I cannot wait until I move out (approx 2 yrs, kid finishing high school).

 

Mon, 10/05/2009 - 15:28 | 89090 Anonymous
Anonymous's picture

You are right on the money. I pay $700/month to NY local and state gov to live in my own house. Real estate is a liability here. I figure I have two, at most three years left here. Throw a dart at a map of the country and you will find a place with a better tax climate. New York pays the second highest per pupil rate in the country. SAT scores rank about 30th-the money goes to fat benefit packages, not the kids.

Mon, 10/05/2009 - 15:57 | 89113 Anonymous
Anonymous's picture

"not the kids."

exactamundo, which is exactly why the moral high ground argument for paying taxes is that it's for the children is a verrry slippery slope.

remember this rebuttal when the whisperings of a tax protest begin in about 6 months and the prop(aganda)bots are out in full force trying to tame us sheeple.

Mon, 10/05/2009 - 16:43 | 89189 deadhead
deadhead's picture

my fav story is when Tom Golisano said screw you and changed his residence to Florida....it was just before the 2 new top personal income tax tier came into existence.

ny is a piece of shit.  i cannot wait to move out.

Mon, 10/05/2009 - 14:24 | 89028 Careless Whisper
Careless Whisper's picture

Note to Paterson and Schwartzneger:

CUT SPENDING ACROSS THE BOARD

 

Mon, 10/05/2009 - 14:28 | 89038 Anonymous
Anonymous's picture

note to Paterson:

follow Arhnold & legalize cannabis already.
you got nothin to lose at this point.

Mon, 10/05/2009 - 18:17 | 89285 Anonymous
Anonymous's picture

Yes, legal reefer can be maxtaxed out the ass and we'll still buy it. Today In CA you can have trouble sleeping and get a legal prescription for a few ounces from one of many reefer stores.

If gubmint would just keep us stoned more of the time, we'd be too hazy and lazy to piss and moan about how much they're fukking us every day.

It's a win-win.

Mon, 10/05/2009 - 14:27 | 89035 trillion_dollar...
trillion_dollar_deficit's picture

This is the very reason why Obama Stimulus 2.0 is certain.

Mon, 10/05/2009 - 14:33 | 89044 Handle with care
Handle with care's picture

I find tax revenue numbers interesting as they're not numbers the government can fudge.  They're also directly related to income and economic activity and not messed around with various models.  They're also mostly non-discretionary, people may hold off on buying a new TV, but they can't decide not to pay their taxes this year.

 

There is a certain amount of discretionary when it comes to sales taxes and there is a disproportionate effect from the progressive tax system and people dropping through thresholds.

 

But we're looking at a 36% drop in tax revenue in a state that houses the financial industry that is paying record bonuses.

 

These kind of figures are being repeated all across the country and are indicative to me of far greater drops in income and economic activity than are being reported by the BLS and other bodies that use models.

Mon, 10/05/2009 - 15:38 | 89097 exportbank
exportbank's picture

Probably the number one reason to not buy real estate is the HUGE increase in property taxes that are just down the road - that loss in sales tax has to be made good by somebody.

Mon, 10/05/2009 - 16:26 | 89163 ozziindaus
ozziindaus's picture

Forget NY and Ca., the US is following the path of the mid West or more precisely, Michigan. We have forgotten our ways people. Remember they used to say "As GM Goes, So Goes the Nation"? Well that may be not exacly apply anymore but it's the manufacturing base that strengthens a nation, not credit and consumption. Someone decided decades ago, including the big dick three, that more money can be made financing a vehicle than actually building and exporting it. Now that the credit has run dry, they are neither building, exporting or financing but instead the treasonous nature of croney capitalism has turned it's attention to the more lucrative emerging markets without a whisper of regret for the destruction left behind. If you want a window into your short term future, come to Michigan.  

Mon, 10/05/2009 - 16:32 | 89177 curbyourrisk
curbyourrisk's picture

Simple answer.....YES....NY is the next California.

I live here....I know.

Mon, 10/05/2009 - 19:07 | 89334 Anonymous
Anonymous's picture

I am also a longtime prisoner of the People's Republik of Kalifornia.

Interesting that CA and NY are the top two in the country in GDP, Effective Buying Income, federal tax revenue paid, etc. And yet they are the top 2 states with lingering budget problems. CA is a chronic budget offender. It's become a sanctuary state and a textbook example of fabian socialist attitudes by legislators.

Hard to believe a national recovery is iminent with these two States on their ass for a long count.

Mon, 10/05/2009 - 16:42 | 89188 Anonymous
Anonymous's picture

Screw the manufacturing base and all who work in it.

All that tradiitonal American manufacturing did was to overpay a large uneducated, unmotivated sector of the US population who thought themselves entitled to a high standard of living merely for working a 37.5 hour week doing mindless repetitive work.

These Archie Bunker types didn't deserve that standard of living.

Mon, 10/05/2009 - 18:11 | 89279 ozziindaus
ozziindaus's picture

OK, I certainly don't agree with the whole model as it existed but to dismantle manufacturing will trickle down to all sectors of society. Just remember that when you squeeze the blue collar middle class, the money goes up whilst the standard of living drops for most. Would you prefer that the unproductive money shifting business's absorb whatever's left after a lighter pay packet at Walmart? Do you expect the service industry to fill the gap or technology to rejuvenate the economy? There are still far more hungrier people outside of the US.

Mon, 10/05/2009 - 19:10 | 89337 Anonymous
Anonymous's picture

Read what he's saying as, incrementally, over the years, one by one, the nepotism, strikes, labor/management collusion that extracted all the profit and borrowed billions for the voracious benefit of the general and administrative staffs, the manufacturing employees, the bloated departments, the general fuck you to the shareholders that Everyone who worked for the auto companies and abetted by John Dingbat, the senior senator who ran the Michigan delegation/onslaught on Washington, recently replaced by Waxman, (now there's a frying pan/fire jump if ever there was one) gradually sucked the life out of manufacturing in the state and set the adversarial relationship between labor (and that's everyone who worked there including the CEO) and the shareholders on a destructive course that was relentless and stupid beyond comprehension.

If they had been sensible in their demands, looked somewhat to the future, reading the signals emanating, nay, clanging deafening them that they should not persist in their extortion, that the manufacturing base in the US would look a whole lot different today.

The same went for the Steelworkers in Pittsburgh.

Mon, 10/05/2009 - 18:57 | 89324 Anonymous
Anonymous's picture

NY State at some point is going to have to attack education expenditures, and almost certainly at the university level. Academe and its retirement and health benefits . . . entirely out of control.

Tue, 10/06/2009 - 06:16 | 89786 Anonymous
Anonymous's picture

you get that? this is the unintended consequence for everyone raging about huge bankers' pay packages...

next year the state will make up with the GS bonuses.

thank you, goldman, for saving the empire state once more.

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