New York $131.8 Billion Plan Boosts Higher-Income Tax

New York Governor David Paterson and legislative leaders said they agreed on a budget that calls for higher income taxes on households with adjusted income exceeding $300,000.

New York, the third-largest U.S. state, faces a record deficit of at least $16.2 billion for the year beginning April 1, as the national economy’s contraction at an annual rate of 6.3 percent in the fourth quarter and layoffs on Wall Street cut tax collections.

The plan includes $6 billion of spending cuts, and $5.2 billion of new or increased taxes in a total budget of $131.8 billion. The overall spending plan is swollen by an additional $6.2 billion of money from the federal stimulus plan that must be spent in the current fiscal year ending March 31, according to the Division of Budget.

The agreement “closes the largest deficit in state history, stabilizes our finances and institutes critical reforms,” Paterson said in a statement issued Sunday evening.

Senate leadership has agreed to curb future property tax growth by linking increases to personal income, Senate Majority Leader Malcolm Smith said. New York has the highest taxes in the nation, if local property taxes are added to state charges on incomes and sales taxes by the state and local governments.

The budget agreement was reached yesterday after weeks of closed-door sessions between Paterson, Smith and Assembly Speaker Sheldon Silver. All three are Democrats from Manhattan.

No Republican Negotiators

It was the first budget since 1965 in which the Republican leader of the Senate wasn’t among the three top negotiators. Democrats won a 32-30 majority in the chamber in last November’s election.

The higher tax income rates are proposed to end after three years. Joint-filers with adjusted income above $300,000 would pay a top 7.85 percent, and those earning above $500,000 would pay 8.97 percent, the same top rate as neighboring New Jersey, the Division of Budget said. The possibility that a higher tax rate would lead wealthy New Yorkers to leave the state was debated in the months leading to the budget agreement.

New York’s existing top tax rate is 6.85 percent for joint filers with adjusted incomes above $40,000.

No Transit Help

Additional financial support for the Metropolitan Transportation Authority that may allow it to withdraw or reduce planned subway and commuter rail fare increases and service cuts weren’t included in the spending plan.

Spending reductions were pared with the help of a $6.2 billion funding increase from the federal government, part of the stimulus package approved earlier this year. The additional money helped restore some cuts Paterson proposed for hospitals, nursing homes and home care involved in the Medicaid health program for the poor.

State aid to schools, the largest item in the budget, will total $21.9 billion, up $405 million from this year. Schools are also expected to receive an additional $852 million of stimulus funds.

Paterson warned lawmakers that the federal money will last only two years, and if it was used in lieu of spending cuts, the state may find itself facing future budget crises.

Bill Printing

Seven of the nine bills in the budget package were printed in time that they may be voted on as soon as March 31. Paterson and lawmakers promised a budget by the April 1 start of the new fiscal year, a deadline that previous administrations often failed to meet. Before 2005, the state had 20 consecutive years of late spending, with delays sometimes lasting into August, causing problems for schools and others reliant on state aid.

Senate Majority Leader Dean Skelos of Rockville Centre, Long Island, said in the days leading up to the budget agreement that Republicans in that chamber were united in opposing higher taxes and fees because they will hurt the economy and stifle job creation.

Sunday morning, the bills were in stacks one-foot high (30.5 centimeters) on lawmakers’ desks.

In his initial budget presented in December, Paterson proposed $9.1 billion of spending cuts. That prompted a barrage of radio and television advertising by labor unions urging the reductions be restored with money from higher income taxes. A Marist College poll released earlier this month found Paterson’s approval rating at 26 percent, the lowest in the 27 years that the school has conducted opinion sampling on the state’s governors.