The New York Legislature’s ongoing debates and delays in passing the fiscal year 2025 budget, which has surpassed the April 1 deadline, have brought attention to critical issues beyond spending concerns. While disagreements persist on matters like housing and expenditure increments, there’s a glaring absence of discussion about the primary revenue source sustaining New York’s finances: Wall Street. This financial behemoth, however, has encountered challenges in recent years, signaling potential shifts in the state’s economic landscape.
Wall Street, synonymous with the securities industry, which encompasses activities such as stock and bond trading, as well as providing advisory services for corporate transactions like mergers and acquisitions, has experienced a downturn after enjoying several years of robust profitability. Despite reaching record pre-tax profits of $58.4 billion in 2021, bolstered by the injection of trillions of dollars in pandemic-related stimulus from both the Trump and Biden administrations, profits took a significant hit in 2022, plummeting to $26.6 billion as the Federal Reserve initiated interest rate hikes. This downward trend persisted into the following year, with profits remaining stagnant.
The ripple effects of Wall Street’s performance extend beyond financial markets to impact high-earning individuals in New York City. Bonuses for 2023 witnessed a substantial decrease, totaling $33.8 billion, remaining unchanged from the previous year and marking a considerable decline from the record $42.7 billion recorded in 2021.
These figures underscore the pivotal role Wall Street plays in driving New York’s budgetary revenues. During the pandemic, the city and state were able to weather economic challenges, partly due to substantial federal aid and, significantly, the extraordinary revenues generated by Wall Street. Despite constituting a relatively small fraction of overall employment, the industry’s high salaries and bonuses translate into outsized tax contributions, with Wall Street accounting for a significant share of both state and city taxes.
In fiscal year 2023, Wall Street contributed $28.8 billion in tax revenues to the state, representing a substantial 27.4% of total state taxes. Similarly, in its record year of 2022, the city received $6.4 billion in taxes from Wall Street, constituting 9.3% of total city taxes.
However, these tax revenues are now on a downward trajectory, exacerbating deficits in both the city and state budgets. Personal-income tax revenues are expected to decline, with the city projecting a 7% decrease, while the state reports an 11% drop in personal-income taxes.
Despite optimistic projections for tax revenue recovery, evidenced by Governor Hochul’s proposed budget increase of 4.5%, concerns linger about the sustainability of these estimates. The securities industry has experienced job losses in New York, with 5,200 jobs disappearing in the city alone, while nationwide, the industry witnessed a growth of 3.4%, indicating a shift of jobs to other states.
These trends underscore a broader shift in the securities industry, with much of the growth occurring outside of New York over the past decade. Texas, in particular, has emerged as a significant beneficiary, adding 36,900 jobs in the securities industry.
In light of these developments, there is a growing imperative for policymakers to reassess budget priorities and consider structural reforms to ensure long-term fiscal sustainability. Rather than solely focusing on short-term spending decisions, concerted efforts are needed to address underlying economic trends and implement policies that foster growth and prosperity for all New Yorkers.