Spitzer Mulls Tax Hike on the Rich

Faced with the task of eliminating a budget deficit that has ballooned to more than $4 billion, Governor Spitzer is considering a proposal to raise income taxes on wealthier New Yorkers, according to a labor-backed political party that is pushing for the increase.

As a candidate last year and as governor, Mr. Spitzer has repeatedly said he will not increase taxes but intends to rely on revenue from nonrecurring sources, such as the selling of state assets, and from the closure of so-called tax loopholes to balance the books.

In light of his sudden decision last week to back away from his plan to allow illegal immigrants to obtain driver's licenses, liberal political activists and some Democrats in Albany are hoping that Mr. Spitzer will break away from another strongly held position.

Support for a tax increase is coming from one of Mr. Spitzer's firmest backers, the Working Families Party, a grassroots operation financed by a coalition of labor unions and community groups. Mr. Spitzer, whom the party cross-endorsed, received 155,000 votes on its ballot line in the general election.

The party, which Mr. Spitzer has hailed as a "major force in state politics," is preparing to roll out a lobbying campaign to urge Mr. Spitzer and lawmakers to close the gap by drawing more revenue from wealthier residents rather than squeezing the budgets of Medicaid and public education.

The plan is likely to call for using a portion of the new revenue to pay for additional property tax cuts for middle-class residents, a shift party activists say would insulate the governor from criticism by allowing him to label the move as a tax shift.

"I have no reason to think he's ruled it out," the executive director of party, Daniel Cantor, said in an interview. "He understands that in a time of crisis, you need to look at all options."

Mr. Cantor and other political activists argue that Pataki-era tax cuts mostly benefited the wealthy, while putting more strain on local governments.

Proponents of the tax cuts are warning that imposing a new hike, especially at a time of economic uncertainty, could have a disastrous effect.

"We're excessively dependent on high-income taxpayers, who are in one of those periods where their income is fluctuating and going down in many cases, and you're saying we're going to squeeze you harder," the director of the Empire Center for New York State Policy in Albany, EJ McMahon, said. "It would economically be very damaging."

Party leaders have not finalized details of the plan, but they are expected to call for raising the income tax rates of New Yorkers earning at least $200,000 to $500,000 a year.

New York has a graduated income tax with rates between 4% and 6.85% of taxable income. Single residents start paying the top rate at $20,000 and married couples at $40,000. All the income of New Yorkers whose incomes exceed $150,000 is subject to a flat 6.85% rate.

Administration officials said the governor, for now, is sticking with his no-new-tax pledge. He reiterated his position last week when he directed his tax department to drop plans to force many online retailers, including Amazon.com, to start charging local taxes on goods purchased in New York.

"The administration has no plan to increase taxes," a spokesman for the governor, Errol Cockfield, said. "The governor has made it clear that he has no intention of raising taxes."

The governor's office, however, has been known to change its plans abruptly. Last week, for instance, a spokeswoman for the governor, Christine Anderson, assured reporters that the governor stood firm on his illegal immigrant license policy despite growing political opposition at the local and national level.

"There is no reversal in the works," Ms. Anderson said. "Naturally, he's talking to people and sorting out next steps, but he's not planning to walk away from this." Mr. Spitzer announced that he was discarding the license plan the following day.

The last time state lawmakers approved a major tax hike was 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 with income of more than $500,000 to 7.7%. The pocketbook impact of the increases, which were phased out over three years, was nullified by federal tax cuts enacted at the same time.

Senate Republicans, who in 2003 joined Assembly Democrats in blocking Mr. Pataki's veto, say they are opposed to any new rate hike. "We're not looking to raise taxes, period, and we keep our commitments," a spokesman for Senate Republicans, John McArdle, said. "If the governor is again considering tax increases, it will be another pledge to the people that he's broken."

Some Democrats in Albany said they would support measures to shift more of the tax burden on wealthier New Yorkers.

"Personally, I think New York State needs a Charlie Rangel-style overhaul of our tax code," a Democratic senator of Manhattan, Eric Schneiderman, said.

"A lot of people in politics are afraid that they will be accused of being tax-raisers, but that fear does not necessarily make for the best public policy," he said. "This will be an important decision for the governor."