New York Is In A Financial Tailspin, Millions Are Suffering. Why Shouldn’t Billionaires Pay More Taxes?

Before the pandemic, Sergio Ajche could earn as much as $200 a day as a roofer. Now he mostly makes a living on his bicycle, working for tips through food delivery apps. On a good shift, Ajche said he can make $100, but other days he goes home with $5.

Ajche and his wife aren’t able to file for state unemployment, and they weren’t eligible for the $1,200 stimulus checks or the $600 a week federal benefits.

“We know that’s because of our immigration status that we don't get relief, but also that makes us feel like we have no choice but to take the risk and look for work,” Ajche told Gothamist.

For Ajche’s wife, who is a babysitter, that meant spending four months away at a vacation home with her employers, who insisted that she quarantine with their children.

“She had no option but to move in with them,” he explained in Spanish. “That was the only way to keep her job.”

The couple pay $700 for a room in Bensonhurst, and send $1,000 a month to Ajche’s two children in Guatemala. “I pay my rent because a lot of these landlords are harassing you constantly for your rent, and it's hard to live like that,” Ajche said. “The first priority is rent before we eat.”

Ajche, who is a member of the Worker’s Justice Project, still finds time to volunteer at a food pantry in South Brooklyn.

“When I hear a ‘Thank you,’ a ‘God bless you,’ it makes me feel good and motivated to keep on doing it.”

The pandemic has killed more than 30,000 New Yorkers, and created unemployment unseen since the Great Depression. But it has been especially devastating for the state’s 725,000 undocumented immigrants, who aren’t eligible for any pandemic assistance, and who predominately work in industries that require exposure to the public—and the coronavirus. Black and Hispanic New Yorkers are more likely to die from COVID-19 due to racial disparities in the healthcare system.

The public systems that New Yorkers rely on are also facing historic budget deficits—$14.5 billion at the state level, $9 billion in the city—with layoffs and cuts to schools and essential services looming in the absence of federal aid. The MTA has said it will have to cut subway and bus service by 40% if it doesn’t receive assistance by the new year.

At the same time, New York’s financial sector posted $27.6 billion in profits over the first six months of 2020, an increase of 82% compared to the same period of 2019, according to a recent report from the state comptroller’s office. Globally, billionaires saw their wealth increase by 27% to $10.2 trillion, from April to June 2020; New York is home to more billionaires than nearly any other state in the country.

“I think it's outrageous and insulting to continue to put billionaires ahead of working families who actually make New York possible. It’s a slap in the face,” Queens State Senator Jessica Ramos said.

Ramos is the main senate sponsor of the most controversial option on a menu of new state tax proposals aimed at the wealthiest New Yorkers: a tax on billionaires that supporters say could raise billions of dollars for a “worker bailout fund.” New Yorkers who have been unable to tap state and federal assistance would receive $3,300 a month, retroactive to April. Recently incarcerated New Yorkers would also be eligible for the money.

“What a pandemic did was expose and exacerbate every single one of the holes that already existed in our safety net, in every aspect of our lives,” Ramos said. “But the truth is that my team and I had been working on this bill way before the pandemic hit. And it really was designed around the idea of reinvigorating the social contract.”

According to Kathryn Wylde, who regularly speaks to wealthy and powerful New Yorkers as the president and CEO of the Partnership for New York City, it is this kind of rhetoric that presents the biggest obstacle to taxing the rich, even if helping undocumented New Yorkers is “a worthwhile cause.”

“The first issue here is not whether they can afford to pay. The question is whether they like to be treated very badly and then turn around and pay for the privilege,” Wylde said of the state’s billionaires. “This is a targeting of a small group of individuals on a very punitive, negative basis. Has anybody sat down with billionaires or their tax accountants and asked them, is there a way that this would make sense to make this contribution? I doubt it.”

For this story, Gothamist asked 113 billionaires who are listed as New York State residents whether they would be willing to pay more taxes to help the state and its most vulnerable residents during the pandemic. Just four responded to the question. Two commented on the record, and only one agreed to speak with a reporter. All four said they would pay more in taxes—up to a point.

“Billionaires, we’ll pay more, but if they’re punished, they’ll leave,” said John Catsimatidis, who made his billions in the grocery and oil industries. “If you lose me, you know how many busboys and waiters lose their jobs? You know many Uber drivers lose their jobs? I go out every night.”

Catsimatidis asserted that “the AOC crowd wants to punish, not to raise more,” and asserted that a tax on billionaires is “dumb as dogshit.” This is why he is voting Republican in the 2020 presidential election.

“I’m supporting Donald Trump now, because the common sense Democrats don’t have the courage to stand up against the crazy Democrats.”

Jed Walentas, speaking for his father, David Walentas, the real estate billionaire who is synonymous with development in DUMBO and Williamsburg, said in a statement that his family would not flee New York if faced with the prospect of paying higher taxes.

“We need federal aid. We need smart and real budget cuts and efficiencies from state and local government and municipal labor — but shared sacrifice means all of us — and it is totally reasonable and appropriate for those of us who have found tremendous successes in this city to pay our share to help pull us out of this mess,” Walentas said in a statement.

A spokesperson for George Soros said the financier and philanthropist supported raising taxes on the rich, but declined to be interviewed. A rep for Jamie Dimon, the CEO of JPMorgan Chase, cited a speech Dimon gave in September, in which the billionaire said he supported higher taxes on wealthy individuals but said that a wealth tax was “almost impossible to administer.” In the same speech, Dimon said that Donald Trump’s tax policies were some of the "very good things" he’s done as president.

"Nobody has the courage that I have,” Catsimatidis said, explaining why every other billionaire in the state refused to speak to a reporter.

James Parrott, an economist at the New School who has co-written several reports about the pandemic's effects on the city, said that COVID-19 has "wiped away a decade of progress that we had made in New York City in raising standards and wages at the bottom."

He estimates that 600,000 of the 1.3 million New Yorkers on all forms of unemployment are receiving pandemic assistance that ends in December, that around 800,000 will lose their health insurance at the end of the year, and that an untold number of New Yorkers will be faced with back rent they cannot pay whenever the state's eviction moratorium ends.

"There's no resolution to this in sight," Parrott said. "The prospect we're facing is one of increasing misery."

In light of all this, Parrott said he supports taxing the ultra-wealthy. "I would think there would be broad support for proposals to share the burden of this public health pandemic," he said. "What do you call a society that ignores this? Cruel? Inhumane?"

Opponents of raising taxes on extremely affluent New Yorkers often point to the state’s relatively high income tax rates, and the Republican-led repeal of the law that caps the amount of state and local taxes that can be deducted from federal returns, as reasons to tread lightly around billionaires. They’d merely avoid higher taxation the same way they have avoided the effects of the coronavirus, and leave, depriving state coffers of vital tax revenue in the process.

"I literally talk to people all day long who are in their Hamptons house who also lived here, or in their Hudson Valley house or in their Connecticut weekend house, and I say, 'You gotta come back, when are you coming back?'" Governor Andrew Cuomo told reporters in August, in explaining his opposition to raising taxes.

Freeman Klopott, a spokesperson for the governor's budget office, declined to say whether the Cuomo administration has studied the affects of raising taxes on billionaires.

“The state routinely reviews a variety of economic, demographic and tax data to inform our analysis of the economy and revenue raising considerations. As we have said, our priority is on obtaining the federal funding that has been promised to states and we are awaiting clarity from Washington, which we believe we will have in early November," Klopott said in a statement.

Emmanuel Saez, an economist at UC Berkeley who studies income inequality, and who helped draft the tax proposal, argues that if billionaires were so squeamish about high income taxes, New York wouldn’t have so many of them.

“New York is 6% of the US population, but it is 18% of all billionaires. Even though you have high taxes, you have a hugely disproportionate share of billionaires, and you have the same story in California, the state with the highest taxes,” Saez said. “You can say we’ve reached the tipping point, but I don’t see how that squares with data.”

Billionaires don’t accrue money like millionaires do, with jobs as high paying professionals or executives. Saez estimates that nearly half of the wealth of billionaires is made up of unrealized capital gains—essentially unsold stock—which billionaires can borrow against to raise vast sums of money, but isn’t taxed until it is actually sold. And that’s only if you’re still a New York resident when you sell it. This has the effect of making the tax code less progressive for those rich enough to avoid it.

“Currently the system gives a very strong incentive for billionaires to retire outside of New York to avoid paying taxes on what they actually made in New York,” Saez said.

“Say you are Michael Bloomberg and you sit on a huge amount of unrealized capital gains, and you don’t want to pay taxes. You become a Florida resident for a year, and that’s where you sell your Bloomberg LP business, that is actually sitting in New York. Because you are now a Florida resident, you don’t pay income tax to New York, and therefore you escape the New York tax on realized capital gains.”

The language of the proposed billionaire’s tax directs the state to determine how much those unrealized capital gains have increased in market value since the billionaire has been a New Yorker, and then tax that increase in value at the standard top income tax rate—8.8%—and repeat the process every year. This kind of “mark-to-market” tax has been proposed at the federal level, and was featured in several Democratic presidential campaigns, but hasn’t ever been tried in the United States. European versions of the tax were difficult and expensive to administer because they also applied to millionaires, not just those who are vastly more rich.

Bloomberg, who at just shy of $55 billion, is the richest of New York’s billionaires according to Forbes, and who made his fortune in the state over decades, would owe around $2.2 billion the first year the tax took effect—roughly double what he ultimately spent on his failed presidential campaign.

(The former three-term mayor and philanthropist declined to comment for this story. A spokesperson cited Bloomberg's presidential platform of raising taxes on the wealthy, but said he had a “longstanding policy” of not commenting on “New York City issues,” his primary campaign and COVID-19 contact tracing duties notwithstanding.)

The bill’s supporters say it could raise anywhere from $5 billion to $23 billion in the first year, depending on whether the billionaires would avail themselves of the option of a payment plan, with $66 billion being raised over a decade.

The tax would take effect immediately, meaning any billionaire who was a New Yorker on July 1st, 2020, would have to pay, even if they have left the state afterwards—as the hedge fund billionaire Paul Singer said he would earlier this month. (Singer did not respond to our request.)

One major logistical challenge for the new tax’s proponents: how do you value a billionaire’s assets? And who is a billionaire? (For our purposes, we used a list from Americans for Tax Fairness and Forbes’s list of the richest people in the world, and excluded those who are not U.S. citizens.)

It’s easy to determine how much 500 shares of Google stock has increased in value over a year, but much harder to determine the value of a private company, or a Francis Bacon. The legislation’s definition of assets is expansive.

“Most valuation issues are either not difficult or not new,” said David Shakow, a professor at the University of Pennsylvania Law School, who has studied the application of a wealth tax.

“The real significant problem is with closely held stock. If [the law] were to pass, undoubtedly you'd have a big fight.”

Of course, New York State already calculates the value of a billionaire’s assets when they die, to determine what they owe under the estate tax. But there are a whole host of strategies that have been developed to help the wealthy avoid paying these too.

A paper published last month in the National Bureau of Economic Research shows that the percentage of billionaires on the Forbes list living in states with estate taxes fell by 35% after 2001, but that states were still better off having one. The researchers found that when billionaires died, they generally paid half of the statutory estate tax rate, yet the effects on state economies were still significant, generating an average of $165 million in tax revenue over the three years after their death. The conservative activist David Koch died in August of 2019, and New York is poised to receive $4 billion of his $50 billion fortune.

“A huge amount of appreciation completely escapes taxation,” said Robert Green, a professor who teaches at Cornell Law School.

The language of the billionaire’s tax bill tries to mitigate potential loopholes, like “poison pills” and transferring assets to relatives.

“They anticipated some strategies, and for what it is, I think it’s a pretty well thought-out way of creating the tax,” Green noted. “I consider this a serious proposal.”

The legislation also takes pains to tax “income,” and not “wealth,” since New York’s constitution explicitly prohibits an “ad valorem,” or wealth tax.

E.J. McMahon, an analyst and senior fellow at the right-leaning Empire Center, called the proposal a “fairy tale” that would clearly violate the state constitution.

“I’m amazed at the extent to which these people take themselves and this bill seriously,” McMahon said. “Starting the discussion at, why can’t we tax rich people? As opposed to, what do we do about this problem?”

McMahon said that the state should consider other efficiencies before considering raising revenue through new taxes.

“Should we still be writing $420 million a year in checks to the motion picture and TV production industry?” McMahon asked. “You have to recognize on the whole that it’s not a great idea to tax [billionaires] so heavily that they’d say, OK that’s my number, I’m folding. Which I think, this is that thing. Assuming you could constitutionally impose it.”

Waiting for the outcome of the 2020 presidential election seems to be the strategy for New York lawmakers. The debate over taxing New York’s billionaires may die down if former Vice President Joe Biden defeats President Donald Trump, and a newly elected Democratic majority in Congress provides desperately needed aid.

If Trump wins reelection, New York’s financial picture could get much darker.

"If the federal government fails to act, the state will consider all options, including borrowing, revenue raisers and spending reductions – no single option will be able to cover the need on its own,” Klopott, Cuomo's budget spokesperson, said.

Daniel Shaviro, who studies tax policy at NYU Law, wondered whether conservatives would use their new 6-3 majority on the United States Supreme Court to question the constitutionality of the income tax itself, using a widely derided, all-but-overruled, technically still-on-the-books Supreme Court decision from 1921.

“If they want to use that decision to blow up the federal income tax, that’s probably within their power. And I do mean blow it up,” he said.

Shaviro thinks the billionaire’s tax proposal would pass state constitutional muster, but that one provision in the constitution—”Undistributed profits shall not be taxed”—gave him pause, because one could argue that could refer to unrealized capital gains.

“It really looks like this is income and it’s just restricted to a particular tier of people,” he said. “But the last sentence I’d have to think about. What does this mean? Is this a problem or not?”

As a matter of tax policy, Shaviro said that targeting billionaires makes sense.

“We have extreme wealth inequality in the country, and we have great fiscal needs. And for me that makes it desirable, subject to administrative and prudential concerns, to require this tier to pay more because they’re doing so well,” he said. “It doesn’t mean they’re bad people or anything, it’s just that they’re in an enormously favorable position, and the whole society is better off if they contribute more.”

Shaviro added, “If we lived in an alternative universe where we imagined, piece by piece, it was all going to be extirpated away from them you’d be a little more worried. But I really don’t think that’s the world we live in. I don’t think this, except in hysterically overheated imaginations, puts us on a path to that sort of thing.”

Carmen De La Rosa, who is sponsoring the billionaire’s tax in the state Assembly, called it “a small sacrifice for long term success of New York's economy.”

“They're working, they're delivering food, they're keeping our city running," she said. “They're people who are essential every single day. Those are the people that we're trying to help.”

With reporting assistance from Clarisa Diaz and Jake Dobkin