Just what are New Yorkers supposed to make of Mayor Bloomberg’s disclosure yesterday that when he announced his billion-dollar tax cut last week he was holding back a vast surplus that he was preparing to siphon off to the government’s own uses? The city, the mayor disclosed in a shocking development, has a budget surplus totaling $3.9 billion. What that means is that for every measly dollar the mayor is willing to return to the taxpayers in the form of tax cuts, he wants to hoard for the government another two dollars and ninety cents. We think the world of the mayor, but by the lights of an ordinary taxpayer he’s got some explaining to do.

That the budget is a raw deal for the taxpayers is illuminated in the mayor’s own budget summary. Two slides tell the story. “New York City’s State and Local Tax Burden Is High,” explains one, which shows that the state and local tax burden on a $150,000-income taxpayer in New York City is $17,911, sharply more than the $13,143 median state and local tax burden in America. “Personal Income Tax Rates in New York City are Higher than Surrounding Areas,” is the headline on a second slide, which appears on page our page 8 and shows that the top marginal personal income tax rate in New York City is 10.5%, while in New Jersey it is 8.97% and in Connecticut it is 5%. Wonder why so many hedge fund billionaires are hanging out in Greenwich?

The Wall Street Journal provided some additional helpful context yesterday when it pointed out that nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — get along just fine without any state income tax. As for city income taxes, they are so rare in America that the cities that have them — Detroit, Philadelphia, Washington, D.C. — are a roll call of urban blight and decay. Boston, Las Vegas, Los Angeles, and Chicago all get along without imposing any tax on the income of their residents. New York City itself got along just fine without any city personal income tax at all until 1966, when the tax was first introduced at a top rate of 2%, according to the Tax Foundation; since then the top rate has climbed to 3.65%.

The mayor’s reasoning, so far as we can understand, is that tax cuts beyond $1 billion and the already ongoing $400 property tax rebates would be unwise, potentially leaving the city in a budget crunch if there is an economic downturn that leaves the city with fewer real estate transfers and smaller Wall Street bonuses to tax. But if the mayor is so concerned about the potential for leaner times ahead, that’s all the more reason for the city to maintain a tax structure that is attractive to business and entrepreneurs. If there are sacrifices needed for a rainy day, more of them should come from spending restraint on the part of government.

As it is, the city’s operating budget has ballooned to $57.1 billion in 2007, according to the plan released by the mayor yesterday, from what the Citizens Budget Commission reckons at $41.6 billion in 2002, when Mr. Bloomberg acceded. That’s a 38% increase over 5 years, far more than inflation. Usually when we make this observation we get an irate telephone call from City Hall, pointing out that some of the spending increase comes from state and federal money that the city can’t fairly be faulted for accepting and spending, and, further, that much of the spending increases are out of the city’s control.

With all due respect to the mayor, we don’t buy it. The state money is part of an elaborate negotiation with Albany in which New York often gets much of what it asks for. The city’s definition of “non-controllable expenses” is so broad as to be absurd. It includes pensions, fringe benefits, retiree health costs, debt service, and Medicaid. Pensions, fringe benefits, and retiree health costs are all negotiated in labor contracts to which the mayor has to agree. The idea that they can’t be controlled is a surrender to the public employee unions, a surrender paid for by taxpayers who generally enjoy far less generous pensions and fringe benefits than do the civil servants.

Much of the Medicaid spending happens at city-run hospitals or at city-contracted nonprofit agencies that in any rational system would be subject to expense discipline. Surely the mayor’s public health expertise could be brought to bear on reducing Medicaid expenditures rather than throwing up his hands and pronouncing them “non-controllable.” It’s a dodge, too, to claim that debt service is a “non-controllable” expense. The debt being serviced is borrowing that the mayor is doing to pay for new parks, schools, museum renovations, and the like. Saying borrowing isn’t controllable is like a person buying a $5 million country home and claiming mortgage payments are a “non-controllable” expense.

Well, we’ve learned not to sell the mayor short, and maybe he’s just setting the stage for a more dramatic reform — say, the elimination of the personal income tax in the city, or at least a reduction of it to its original, 1966 levels — closer to the beginning of his presidential campaign. One can hope. Certainly Mr. Bloomberg has made his mark when he has thought big and expanded the definition of what had been thought possible. The scandal of this surplus offers the opportunity for the mayor to take that sort of bold action in respect of taxes.