Greatest Challenge to Tech? How About Them High Taxes

Crain's New York Jul 19, 2011 Back to press

New York City's high tax base took center stage during a panel discussion entitled “Can Tech Fuel Our Future Growth?” at Crain's Future of New York City conference at the Grand Hyatt Hotel in Manhattan on Tuesday.

James Robinson IV, Co-Founder and Managing Partner at venture capital firm RRE Ventures, a major investor in city-based tech startups, said that high taxes were the single biggest challenge facing startups here, outweighing even the high cost of real estate and talent as a barrier to entrepreneurs looking at establishing or growing their businesses here.

“The fundamental difference between a Silicon Valley vs. a [Silicon] Alley company: tax breaks,” said Mr. Robinson.

Sunil Hirani, co-founder and chief executive of trueSEF, his second startup, agreed that the current tax code places the city at a “competitive disadvantage.”

“I think the administration is being a little too naïve by thinking that costs don't matter; that at any cost people will want to live here,” said Mr. Hirani, adding that he believes initiatives such as a 10-year tax holiday for startup businesses would entice more businesses here.

Local personal and business income taxes per dollar of income in New York City is many times higher than the average of the eight next largest cities in country, according to a February 2007 report entitled “Comparing State and Local Taxes in Large US Cities” conducted by the Independent Budget Office.

Although panelists focused on the city's high costs as a barrier to growth, all agreed on the benefits of being here, particularly in being able to access a rich, broad pool of highly talented employees. Dr. Sharon Mates, chairman and CEO of biotech firm, Intra-Cellular Therapies, said that the exchange that takes place here between city's research and academic institutions and her company's employees is critical to her firm's success.

Seth Pinsky, president of New York City's Economic Development Corp., pointed out that those taxes that everyone complains of pay for the public transportation, the services, the cultural institutions and the parks that make New York City such an attractive destination for so many talented people.

Moderated by Crain's columnist Greg David, the panel explored whether New York's burgeoning tech sector can sustain its current growth, and even challenge Wall Street's dominant role in powering the city's economy.

In the past, Wall Street has tended to absorb much of the city's engineering and math talent to create its vast, powerful trading systems. Tuesday's panelists noted that Wall Street's current woes have actually created an opportunity for a tech revival. The recession and its aftermath have also lessened many of the costs that make establishing and growing businesses in the city such a challenge.

Mr. Pinsky said he believed that the recruitment of top-tier talent is at the heart of the movement to grow the tech industry. “As long as New York City continues to be a magnet for talent, the ideas they generate will be located here,” he said. “If the best and brightest continue to move here, businesses will have no choice about whether or not to follow.”

“I have a slight disagreement with Seth that people want to be here at all costs,” countered Mr. Hirani. “They don't.” Though Mr. Hirani characterized New York as “a vibrant place to do business,” he also pointed out that it's “a very expensive place to do business.”

“I mean, why not have a tax holiday for ten years?” Mr. Hirani asked. “Places like Singapore did that and they attracted a lot of companies to move there.”

They have “tax breaks in the Bay Area that are very sophisticated,” Mr. Robinson added, saying that potential Silicon Alley startups were at a “competitive disadvantage.”

So does this tech boomlet have staying power? Mr. Pinsky believes that unlike the dotcom bust a decade ago, we are witnessing the establishment of a real ecosystem this time around: Universities are committing research and development resources to the effort, venture capitalists are opening New York offices and a lot of institutions that are supporting these businesses are putting down roots here, including Google, Facebook and gaming company Zynga, which are all looking to expand in the New York area.

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