Paterson Warns Against Tax Hike

He Will Resist New Levies on Top Earners

By JACOB GERSHMAN, Staff Reporter of the Sun
March 20, 2008

Governor Paterson, sharing concerns aired by Mayor Bloomberg, is signaling that he will resist a push by Assembly Democrats to raise taxes on New York's wealthy.

After emerging yesterday from his first City Hall meeting with Mr. Bloomberg since becoming governor on Monday, Mr. Paterson expressed strong reservations about a tax hike and said the state could produce a balanced budget without resorting to one as long as revenues stopped their slide.

While the governor didn't go as far as his predecessor, Eliot Spitzer, who had ruled out a tax increase during his last days in office, Mr. Paterson spoke more negatively about the idea than previously, and went as far as to suggest that the state's top earners have already suffered enough from the sagging economy.

"I think that we should be thinking at this time about how we got our economy in the place that it is. So I think the foremost area that we would want to address is to tighten our belts," Mr. Paterson said. "Not to drive up taxes for a constituency that has been, I would say, just battered over the past number of years. And compared to other states, I don't think that this is where we should be going," he said.

The Democratic governor's position put him at odds with the Democratic speaker of the Assembly, Sheldon Silver, who has defended his chamber's tax plan as an emergency measure — the only reasonable recourse, he argued, to close a state budget gap that has soared past $5 billion.

"I'm just suggesting that somewhere you need a balanced budget. …The question is how does that gap get filled," Mr. Silver said on Tuesday.

Mr. Bloomberg last week said the tax increase endorsed by the Assembly would end up hurting the state by encouraging wealthy employers to decamp to lower-taxed states.

The Assembly's proposal calls for raising the personal income tax rate of people earning more than $1 million a year to 7.7% from 6.85%. The increase would be authorized for five years. The combined local and state tax rate for millionaire residents of New York City would climb to 11.35%, more than double the rate that wealthy Connecticut residents pay.

The proposed tax hike would apply to about 50,000 filers — including about 20,000 nonresidents — and would generate an estimated $1.5 billion in annual revenue.

Senate Republicans say they wouldn't agree to the increase, but have meanwhile called for hundreds of millions of dollars in additional health care and education spending without detailing how they would pay for the increases.

Mr. Spitzer's executive budget proposed raising more than $1 billion by tightening the tax code and raising an assortment of fees. Mr. Silver and Assembly Democrats say their so-called Millionaire's Tax is a fairer and more dependable way to replenish state coffers.

Declaring the nation to be in a recession, the Paterson administration on Tuesday essentially resubmitted Mr. Spitzer's executive budget, proposing a new 2008–09 spending plan that carved out an additional $800 million and reduced spending growth to less than 4%.

Responding to gloomy economic forecasts, Mr. Spitzer had already lowered revenue estimates by $600 million since he presented his budget to lawmakers in January.

Talking to reporters, Mr. Paterson said the state could slide by without raising taxes if revenue projections leveled off. "I think we can cut without raising taxes. I'm pretty sure of that," he said.

Mr. Paterson's plan call for trimming aid to localities and slightly reducing agency costs, but does not say precisely how the cuts would be distributed. Lawmakers, meanwhile, are pushing the governor to increase spending on education, Medicaid, and a property tax cut program by more than $1 billion.

If they reject Mr. Paterson's spending cuts, the governor may be forced to consent to a tax increase to pass an on-time budget, which is due at the end of the month.

Lawmakers last approved a significant tax hike in 2003, when they overrode Governor Pataki's veto and raised the rate for residents earning more than $150,000 to 7.5% and for residents earning more than $500,000 to 7.7%. The increase was phased out over three years.

Assembly Democrats and supporters of the increase said yesterday they were confident that Mr. Paterson was open to their idea despite his reservations.

"The speaker's proposal is the most credible one and important one on the table," the executive director of the Working Families Party, Daniel Cantor, said. "There's no way to solve this problem without a combination of cuts and high-end tax increases."

A Democratic assemblyman of Westchester, Richard Brodsky, said Mr. Paterson was not siding with either Mr. Bloomberg or Mr. Silver but shrewdly keeping his options open.

"What he's saying is that he hasn't made a final decision on anything. I can say with assurance that David is a real progressive," he said. "He's going to be tempering his instincts with political reality and managerial responsibility. And he's also going to surprise people."

Paterson Warns Against Tax Hike

He Will Resist New Levies on Top Earners

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