This morning the Committee on Capital Markets Regulation, an independent bipartisan group chaired by R. Glenn Hubbard of Columbia University and John Thornton of the Brookings Institution, is due to release its interim report on American competitiveness. The project was directed by Hal Scott of Harvard Law School. The authors concluded that American markets have indeed experienced a loss of competitiveness lately and that “we should, therefore, be concerned.” The report also highlighted the extent to which New York City depends on the health of Wall Street. When the laws that regulate Wall Street are too harsh, both Americans and New Yorkers lose and New Yorkers cannot take Wall Street’s strength for granted. Excerpts from the report’s New York section:

At the end of January 2006, the New York State securities industry directly employed 194,000 individuals, 89.5% of them in New York City. This represents 24.5%, or nearly one in every four, of securities industry jobs nationwide. The industry’s share of the state and local workforce has also been rising since late 2003.

As of the end of July, New York City had regained a total of 19,900 securities industry jobs, or 48.2%, of the 41,300 jobs lost between the peak of 200,300 in December 2000 and the trough of 159,000 in April 2003. The jobs gained over the past 39 months represent a 12.5% increase of the New York City securities industry employment. Employment in New York City’s securities industry has been trending upward, though still 10.7% below its peak level.

In New York State and New York City last year, the securities industry accounted for 2.2% and 4.7% of total employment, 2.5% and 20.7% of total wages, and 9.2% and 14.1% of total annual gross income, respectively.

The industry also accounts for a disproportionate and expanding share of the local and state economies. Over the past 15 years, growth in the securities industry in New York State has outpaced activity in all other sectors of the state economy. During this period, the securities industry’s share of the Gross State Product rose to a currently estimated 7% from 4.3% and accounted for more than one-quarter of all economic growth in the state.

A vibrant and growing securities industry is vital to both the national and state budgets, particularly those of New York City and New York State. At its peak in fiscal 2001, tax revenue generated by the securities industry accounted for 15.8% of NYC’s total nonproperty tax payments in that year.

Benefits to NYS are even more pronounced, since the state personal income tax applies not only to NYC residents but also to residents in the rest of the state and to all out-of-state commuters. In the same year, NYS collected $8.2 billion, or 18.7% of total tax receipts.

After a severe two-year downturn, the securities industry has been the driving force behind NYC’s economic recovery. “More than half of the fiscal 2004 surplus comes from unanticipated tax revenues from increased Wall Street activity and real estate-related transactions,” the NYS Comptroller noted. In fiscal 2005, NYC’s total securities industry tax payments reached almost $2.1 billion — nearly 11% of nonproperty tax revenues — and are anticipated to reach a record $2.4 billion in fiscal 2006. “When we look at tax revenues,” William McDonough, a former president of the New York Federal Reserve Bank reflected, “the major swings in New York City revenues reflect the fortunes of the securities industry.”