Wall Street Mortgage Losses Cut Tax Bills to Zero, Reduce New York Revenue

[Purveyor]

Aug. 12 (Bloomberg) -- Wall Street's mortgage losses have grown so large that some firms may pay little or no taxes for years, widening New York City and state deficits and challenging their ability to provide services, Mayor Michael Bloomberg said.

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

``I think it will be a number of years before Wall Street starts paying taxes again,'' the mayor said at a press conference yesterday in Manhattan. ``They will carry forward all of those losses.''

Financial firms posted $493 billion in writedowns and credit losses worldwide since the start of last year, a figure the World Bank predicts may rise to $1 trillion as the credit squeeze sparked by the subprime market collapse worsens. The tax drain is particularly serious in New York, where Wall Street accounts for 20 percent of state revenue and about 9 percent for the city, state Comptroller Thomas DiNapoli has said.

``If the World Bank's prediction that the large investment banks will book up to $1 trillion in writedowns 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.''

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[Skink]

1. Maybe we should have a flat tax.

This city I've lived in since 2000 every year adjusts property taxes upward. Prices here in no way have gone crazy like on the coasts but what is going to happen when property values drag down the tax base. The city needs more tax revenue rather than less at the present time.

[Serial Mom]

2. Maybe they should stop giving millions in bonuses!

If they aren't "earning" enough to pay taxes, then the managers and brokers should stop receiving bonuses!

[Cassandra]

3. Particularly bonuses based on...

profits that never materialized.