- The Washington Times - Wednesday, August 13, 2008

Wall Street’s mortgage losses have grown so large that some firms may pay little or no taxes for years, widening deficits in New York City and the state, said Mayor Michael R. Bloomberg.

Some companies are even seeking refunds from the city on taxes they prepaid, saying losses have cut their tax liability to zero, Mr. Bloomberg said. The banks pay tax on 110 percent of earnings in advance as a safe harbor that protects against penalties for underpayment.

“It will be a number of years before Wall Street starts paying taxes again,” the New York City mayor said at a press conference Monday in Manhattan. “They will carry forward all of those losses.”

Financial firms have posted $501 billion in write-downs and credit losses worldwide since the start of last year, a figure that the World Bank predicts could rise to $1 trillion as the credit squeeze sparked by the collapse of the subprime mortgage market worsens. The tax drain is particularly serious in New York, where Wall Street accounts for 20 percent of state revenue and about 9 percent of city revenue, state Comptroller Thomas DiNapoli has said.

“If the World Bank’s prediction that the large investment banks will book up to $1 trillion in write-downs because of the mortgage crisis is true, then Mayor Bloomberg is absolutely right,” said Lynn Turner, former chief accounting officer of the U.S. Securities and Exchange Commission. “These guys won’t be paying taxes for some time.”

In the city, where Wall Street provides about 5 percent of jobs and more than 20 percent of total personal income, deficits are projected to widen to $2.3 billion in the fiscal year beginning next July, growing to $5.96 billion and $5.4 billion in 2011 and 2012, city Comptroller William Thompson has said.

The mayor didn’t name the firms that contacted the city seeking repayments of their taxes. The companies generally file estimated quarterly taxes based on a formula that provides 110 percent of earnings in the prior year.

“You have to give them the money back,” Mr. Bloomberg said. “We’ve already collected it, but we can’t spend it because it’s not ours.”

At the state level, New York Gov. David Paterson is calling the Legislature back to work next week in an emergency session. Sixteen of the state’s largest banks sent taxes totaling $5 million to the state treasury in the most recent reporting period, down 97 percent from last year, Mr. Paterson said.

The state faces a $630 million shortfall in the year that began April 1 and a $26 billion deficit over the next three years, Mr. Paterson has said.

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