The $4.4 billion surplus in the city budget that Mayor Bloomberg is expected to announce today is, in one sense, something to celebrate. It is the fruit of the economic growth spawned by lower marginal tax rates at the federal and even at the city level. At the federal level, the tax cuts passed by President Bush and the Republican Congress reduced tax rates on income, dividends, and capital gains. What followed has been a historic expansion of the economy, low unemployment, and a stock market that, measured by the Dow Jones Industrial Average, is at an all-time high. At the city level, Mayor Bloomberg and the City Council let the personal income tax surcharge expire on December 31, 2005, as scheduled. That lowered the city’s top marginal income tax rate, which applies to those earning $500,000 a year or more, to 3.648% from the 4.45% it was before.

The results, as any supply-sider would have predicted, were record tax revenues. Especially at the highest reaches of earners, and even at the middle reaches, taxpayers have a lot of control over the timing of when they realize their income. Lower the rates, and the revenues increase. The real estate boom — made possible in part by Governor Pataki’s removal of the Cuomo Tax on real estate transactions — has further swelled city and state tax coffers.

The surplus, which is joined by a somewhat smaller $1.5 billion surplus at the state level, where taxes haven’t been cut as much, isn’t entirely cause for celebration, however. It means that the taxpayers are being forced to overpay. The combined state and local tax burden in New York is the highest in the nation. And while some of that goes to services that are the best in the nation — from the NYPD to the city’s cultural institutions — some of it is wasted. The lesson of the geyser is that tax rates can be reduced without running the city into red ink. The rate cuts unleash economic growth that yield increased revenues. Mayor Bloomberg has some fine ideas for using the surplus, starting with tree-planting. We’re all for trees. But if Mr. Bloomberg leaves office — or launches a presidential campaign — with New Yorkers bearing the heaviest tax burden in the nation so that the city can accumulate record surpluses, he’ll be undermining his own case. Better to build on the achievement of the expired personal income tax surcharge and reduce the marginal rate on income yet further, unleashing new growth that will put the city, and its individual taxpayers, on a still sounder financial footing for years to come.