A Bewildering Budget
Governor Paterson insists he understands why New Yorkers are upset by his proposed budget, which cuts public services while hiking an array of small taxes, fees, and college tuition. “I can't tell anyone they're wrong. The education cuts are draconian. The health care cuts are prohibitive. The taxes being levied on New York's citizens are not fair. But when you add it all up, we think we delivered the pain pretty evenly." The protestations of evenly-distributed pain are dubious – as DMI’s Andrea Batista Schlesinger points out in Friday’s New York Times, Paterson proposes boosting sales taxes on items disproportionately purchased by lower-income New Yorkers, like cigarettes and lottery tickets. And when wealthy people so buy these things, taxes eat up a much smaller proportion of their income. In other words, it’s a regressive tax. And Governor Paterson has missed a chance to raise the needed revenue (and prevent damaging service cuts) by taxing progressively.
Which brings us to another question: why should the economic pain be “distributed evenly” when the state’s benefits were not?
As I noted last month in the Albany Times Union:
“New York is the most unequal state in the nation, with income disparities that have been growing rapidly. During the past two business cycles, the incomes of the top 5 percent of New York families grew eight times faster than those of New York's middle-income families and nearly 13 times faster than low-income families, according to a study by the nonpartisan, labor-supported Fiscal Policy Institute. Without the state's substantial investments in public goods like an educated work force and an efficient transportation system, these gains for the state's wealthiest residents might not have been possible.”
The reality is that both basic fairness and basic economics recommend that New York pursue broad-based income tax increases on its wealthiest citizens – a solution Governor Paterson has so far refused to consider – rather than a mix of harsh service cuts and regressive tax increases. As Paterson’s own economic advisor, Nobel Prizewinning economist Joseph Stiglitz told him in a public letter back in March:
"In a recession, you want to raise (or not decrease) the level of total spending — by households, businesses and government — in the economy. That keeps people employed and buying things, and makes it more likely businesses will want to invest to serve that consumer demand. Budget cuts reduce the level of total spending. Raising taxes on high income households also will reduce spending, but by less than the amount of than the amount of tax increases since those with plenty of income typically spend only a fraction of their income…economic theory and evidence gives a clear and unambiguous answer: it is economically preferable to raise taxes on those with high incomes than to cut state expenditures."
Paterson should know better economically. And given the tremendous opposition his budget proposal has generated from all sides of the political spectrum, he should perhaps know better politically as well.