NYC-WTC_000195490

NYC 9/11 Public Portal Document

longer-term bonds fell precipitously, leading to large drops in bond trading income. At the same time short­ term rates jumped, pushing up expenses. These two trends combined to shrink profitability and consequently i tax liability. In 1995, FIRE sector liability rebounded with pre-tax profits from New York Stock Exchange member firms reaching $7,4 billion over the $1.1 billion earned in calendar year 1994. The rebound in FIRE sector profits stemmed from a reversal of events which depressed earnings in calendar year 1994. The Federal Reserve stopped raising interest rates and actually eased the Federal Funds rate twice in 1995, having achieved a much touted soft landing. The financial markets responded with a strong recovery, leading to impressive gains across all securities industry market segments. Record profits in the securities industry in 1996 increased FIRE sector liability by 34 percent while total corporate liability grew by over 19 percent. The securities industry continued its successful trend in 1997 and equity markets in the U.S. had a banner year with equity prices as measure^ by the Dow Jones Industrial Average (DJIA) posting a 23 percent gain. This li followed a 26 percent rise in 1996 and a 34 percent advance in 1995. Corporate tax liability increased by 6.4 percent in tax year 1997. /

Forecast: The 2001 general corporation tax forecast has been'raised by $83 million to $1,806 million, growth of 1.5 percent Over the prior year. The forecast for 2002 has been reduced by $28 million to $1,490 million, a decline of 17.5 percent from the 2001 level, ' / >

The 2001 and 2002 forecasts include reductions of $118 million and $122 million, respectively, relating to the effects of the limited liability company (LLC) business form which is expected to reduce the number of corporate filers, as well as reductions of $127 million and $130 million in 2001 and 2002, respectively, relating to the business tax reform measures passed in 1996, On a common rate and base, general corporation tax revenue is forecast to increase 4,3 percent in 2001 and decrease 14,9 percent in 2002, Through March, general corporation tax collections have increased 7,6 percent from the prior year period. Growth in current collections reflects the strength of the national and local economy for most of calendar year 2000. The securities industry had another record year of earnings, with New York Stock Exchange (NYSE) member-firm pretax profits totaling $21 billion for the full year. General corporation tax liability in the FIRE ■I! sector is estimated to have increased by over 20 percent in calendar year 2000. The lion's share of the profits [ occurred in the first half of the year, however. As the year progressed, uncertainty about the prospects for continued economic ,expansion, and hence future earnings started to unravel the long bull market. Equity indices started to slump, the boom in underwriting ground to a halt and investment banking and trading revenues started to decline sharply. The profitability slowdown has recently been reflected in tax payments with the December and March payments down 1.5 percent and 1.1 percent, respectively, after growth in June and September of 20.9 percent and 30.4 percent, respectively. Profit growth in the non-FIRE sector of the if City’s economy was'also strong in calendar year 2000 with corporate tax liability in this sector estimated to have increased by 9)5 percent.. National before-tax corporate profits increased 12.5 percent, real gross city produci is estimated to have grown by 10.1 percent and a total of 95,000 private non-FIRE jobs were added in calendar year 2000. In 2002, general corporation tax revenue is forecast to decline 17.5 percent, reflecting profitability declines brought about by the financial market correction and the national economic slowdown. The prondunced drop in NYSE member-firm profits forecast in calendar year 2001 is estimated to reduce FIRE sector corporate liability by $363 million from the prior year level. The decline of 6.2 percent in national corporate profits is, forecast to reduce non-FIRE corporate tax liability by 1.8 percent in calendar year 2001. These liability revisions reduce forecast corporate tax payments in fiscal year 2002 over $200 million from the prior year. Modest growth is projected for both the securities industry and national before-tax corporate profits from calendar year 2002 through 2005, leading to 4.9 percent growth, on average (common rate and base), in the outyears of the plan. \

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NYC-WTC_000195557