ALBANY – A coalition of groups with strong ties to organized labor is calling on state lawmakers to double the personal income tax on wealthy New Yorkers and to adopt Wal-Mart like tactics with drug suppliers as a way of solving the state’s annual budget crunch.

The group, Better Choice Budget Campaign, is also accusing Governor Pataki of exaggerating the state’s budget deficit last year to justify cuts to Medicaid and other entitlement programs. The Department of Budget originally projected a $6 billion gap; the figure has been revised to less than $4 billion.

“The argument that people would leave the state if you increased income taxes is simply not true,” the executive vice president of New York State United Teachers and a member of the Better Choice coalition, Alan Lubin, said. “No one has left New York because of the personal income tax.”

Mr. Lubin, who last week issued a poll suggesting that most New Yorkers support taxing wealthy residents to pay for a giant, court-mandated spending increase for New York City schools, said restoring income tax brackets to 1972 levels could result in nearly $8 billion in new revenue to the state.

Under the old model, people in the highest income bracket paid a 15% tax on personal income on top of the federal income tax, as compared to 7.7% today. Mr. Pataki is proposing to lower the current rate at the end of the year.

The idea of a wealth tax has gained momentum in recent days following a court ruling in the 12-year-old Campaign for Fiscal Equity case that said the state must increase by more than $20 billion over five years its spending on New York City schools.

Mayor Bloomberg said last month that he supports making permanent a temporary tax increase on individuals who earn $100,000 and married couples who earn $150,000. The governor and the Senate majority leader, Joseph Bruno, have ruled out raising taxes as a solution to education funding.

Messrs. Bruno and Pataki have proposed as an alternative accelerating the December 31 expiration date on the temporary income tax and using proceeds from several new video lottery terminals.

The Better Choice proposals came one day after a budget analyst with the Manhattan Institute warned legislators that raising the personal income tax could have devastating effects on the state’s economy.

In testimony before a joint finance committee, E.J. McMahon said making the temporary hike permanent would “send a signal to investors and employers that the era of pro-growth tax reduction is over in the Empire State.”

The director of budget studies with the libertarian Cato Institute in Washington, D.C., Stephen Slivinski, agreed. He said a personal income tax hike could make New York less competitive than its neighbors.

“It’s been pretty clear from 60 years of data that states that have faster growing tax burdens relative to other states tend to have lower population growth and sometimes populations declines and slower personal income growth than other states,” he said.

Mr. Slivinski is the author of an upcoming report that says state residents tend to follow tax breaks. The study says population growth averaged 17.5% in tax-cutting states and 14.4% in states that lowered taxes.

Raising the personal income tax is one of several ideas the Better Choice coalition recommends to correct budget gaps that its members attribute to past reductions in the income tax under Governors Cuomo and Pataki. It says the cuts represent a potential $6.5 billion deposit in the state treasury this year – enough to cover the CFE case over time.

“What we’re saying this year is that for the amount of money involved, the only really good way for New York to pay for the CFE case is a progressive tax increase,” the executive director of the Albany-based Fiscal Policy Institute, Frank Mauro, said.

The Better Choice group says the state could also save money by bargaining for better drug prices. According to a Fiscal Policy Institute economist, Trudi Renwick, New York is one of the single largest purchasers of drugs in the world and could use its leverage to get better deals from suppliers.

Wal-Mart, the world’s largest retailer, is known for employing similar tactics with its vendors. Ms. Renwick said the state could save as much as $1 billion annually through negotiations.

The Better Choice Budget Coalition represents more than 100 community, labor, and education groups throughout the state. The group met this month to highlight what it views as inequities in the state’s tax system, pitting itself against fiscal conservatives who argue that lower corporate and personal income taxes have a positive cumulative effect on the state’s economy.

Mr. Lubin cast the group’s proposals as a way to do just that.