Within the Consolidated Laws of New York, a huge multi-volume collection that adorns the shelves of many law offices, there are some very strange provisions. One of the strangest is the tax rebate for Wall Street. What? You did not know that such a thing existed? It does. The question then arises: why does Wall Street need a tax rebate? The short answer is: it doesn't.
Since 1915, New York has taxed the sale of securities. Nonetheless, the securities industry flourished. The state began rebating the tax in 1979 until the point where the rebate reached 100 percent, which is excessive and no longer justifiable.
The rebate arose amidst over-exuberance about stimulating the economy through tax cuts and unleashing the financial sector. Democrats and Republicans bought into this approach.
Recently, in his book "The Price of Inequality," Nobel Prize-winning economist Joseph Stiglitz, former chief economist of the World Bank, and former head of President Clinton's Council of Economic Advisors, wrote in favor of the stock transfer tax. He explained that taxes of this kind are needed to reverse a philosophy that encouraged speculation, did not promote investment, led to economic collapse and caused a hollowing out of the middle class.
The tax is essetially harmless. Stiglitz observed: "A major change occurred in markets around the turn of this century: Most trading on the stock exchange was done by computers trading with other computers, using certain algorithms." Real evaluation of firms as targets of investment fell out of favor in comparison to "extracting information from the pattern of prices and trades, and on whatever other information a computer could absorb and process on the fly. Flash trading and other speculation may create volatility, but not really create value: The overall efficiency of the market economy may even be reduced. Through our bailouts and a myriad of hidden subsidies, we have in fact been effectively subsidizing the financial sector." Numerous other countries impose this tax without any reduction in productivity or efficiency, including Germany, the leading economy in Europe.
The type of investors who commit to the long run future of a company are largely unaffected. They make very few trades in comparison to computerized flash trading.
Reducing the rebate to 60 percent would raise $6.4 billion in revenue. With that money, we could put people to work rebuilding and improving upon our state's deteriorated infrastructure. Superior infrastructure would be a long-lasting lure of business to New York state.
Overall economic progress depends not on a myriad of stock trades, but on raising the purchasing power of workers, what economists like Stiglitz refer to as increasing the aggregate demand. Let's put the failed supply side mythology of the past behind us and move forward.
Steck is an Assembly member from the 110th Assembly District, representing Colonie, Niskayuna, and Schenectady.