Mayor Bloomberg has been making noises for the last few months about cutting taxes, and he’s only been getting louder. “Taxes are going to go down over a period of time here,” he said last week at Brooklyn.”The taxpayers have stepped up to the plate, they have gone to their pockets, they have borne the burden during tough times.…We have to find ways to balance the budget and not continue to do it on the backs of taxpayers.”

This is all well and good. Tax cuts are what is needed to restart New York City’s stalled economy. And the mayor certainly could use the political boost going into 2005 of putting more money back in taxpayers’ pockets, as he is reviled, especially in the outer boroughs, for the 18.5% property tax hike he instituted. But he will also need to get to cutting the size of the city’s government. With more than 250,000 city government employees, one-seventh the number employed by the federal government, Gotham can afford to lose the dead weight.

The need to cut was reinforced at the beginning of this week by an analysis from the city’s comptroller, Wm. Thompson. Mr. Thompson delivered the upbeat news that it looks like the city’s budget will be balanced this fiscal year but added that we are still in deep trouble in the out years of 2004–07. Pension and debt costs have long been soaring and are set to explode in the next few years. In the mayor’s executive budget from April, pension costs are estimated to grow to $3.4 billion in fiscal 2005 from $2.7 billion in fiscal 2004. Debt service is estimated to be going up about a quarter of a billion dollars between FY 2004 and FY 2005.

There will only be two ways for the mayor and the City Council to deal with this. One way — what they have done so far when faced with a budget crisis — is to increase taxes, borrow, and pray for a recovery. If Mr. Bloomberg is smart, however, he will switch to a strategy of cutting government and combine that with cutting taxes to create a climate of growth. Then he might even see increased revenues if the city can convince businesses and the wealthy that lower rates are here to stay, meaning it is safe to move back to the Big Apple.

There are ways to cut, the union representations to the contrary notwithstanding. But, it must be noted, these are not the things the mayor has referred to as “cuts” in the past. Reducing the expected rate of growth of a government program, while a positive step, is not the same thing as cutting it. Furthermore, allowing the already-enacted tax increases on sales and income tax to sunset, as promised, cannot properly be seen as a tax cut.

Taxpayers, however, might want to watch carefully to make sure that even this promised step goes forward. The history is not encouraging. The Office of Management and Budget’s “Tax Revenue Forecasting Documentation” is available on the World Wide Web. The most recent bout of surcharge-mania occurred in the Dinkins administration. In 1990, there was a surcharge implemented bringing the top income tax rate in the city to 3.91% from 3.4%. Initially slated to run only to 1992 from 1990, it was extended to 1996 by the “Safe Streets, Safe City” program, and didn’t expire, ultimately, until 1998. An income tax surcharge from 1991, at a rate of 14%, persists to this day. Let the OMB tell it: “Low income taxpayers were not exempt from the additional tax. [It] has since been extended four times, in 1993, 1995, 1997 and 1999.”

To make room for some real tax cutting, Mr. Bloomberg will have to get tough with the unions. About 67,000 out of 80,000 non-managerial civilians working for the city — i.e. those who are not teachers, firefighters, policemen, or senior officials — work 35-hour weeks. Fewer than 10,000 work a 40-hour week. The Citizens Budget Commission has estimated that if the city were to insist on a 40-hour work week, 12.5% of non-managerial civilians could be cut — about 8,000 workers — for a savings approaching $500 million a year.

Quite a bit could also be saved simply by asking city workers to contribute a copayment to their basic health insurance coverage, like most other workers in the country. New York State workers co-pay 10% of individual coverage and 25% of family coverage. Under the Federal Employee Health Benefits Program, workers co-pay 25% for most plans. The Manhattan Institute’s fiscal policy expert, E.J. McMahon, estimates that if New York City workers agreed to pay the same share of their coverage as federal employees, the city would save $508 million a year by 2006. These are hardly radical measures. If Mr. Bloomberg is at all serious about tax relief, as we hope, he needs to get started.