Governor Calls Raising Taxes a ‘Last Resort’
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When Governor Paterson needed to get a handle on the state’s rocky finances, he sought the counsel of one of America’s most prominent economists, Nobel Prize winner Joseph Stiglitz.
The governor, however, doesn’t appear to be taking the Columbia University scholar’s advice. On the issue of how to bridge the state’s widening budget gap, Mr. Paterson and Mr. Stiglitz are miles apart.
Asked yesterday if he would raise taxes, Mr. Paterson said he would do so only as a “last resort,” saying he feared that imposing higher rates would encourage lawmakers to pile on spending.
“The reason that I’m avoiding it is because I think taxes are addictive,” he said. “What happens is when you start taxing, people start thinking of ways of spending money that you taxed.”
Mr. Paterson’s new economic guru recommended just the opposite course of action in a March 27 letter to the governor and legislative leaders. A copy of the letter was made public yesterday by a liberal fiscal group in Albany.
“New York, like most states, is now facing an unenviable choice: either taxes have to be raised, or expenditures cut,” Mr. Stiglitz wrote. “When faced with such an unpleasant choice, economic theory and evidence gives a clear and unambiguous answer: it is economically preferable to raise taxes on those with high incomes than to cut state expenditures.”
The professor, who is a former chief economist of the World Bank and member of the Council of Economic Advisers, argued that raising taxes on the state’s wealthiest residents would help pull the state out of a recession more quickly by maximizing the total spending in the economy.
“Every dollar of state and local government spending enters the local economy right away, generating a greater economic impact,” he wrote.
“Raising taxes on high income households also will reduce spending, but by less than the amount of the tax increase since those with plenty of income typically spend only a fraction of their income,” he wrote.
Mr. Paterson, who met privately with the scholar on Monday, said the state in the past has squandered extra tax revenues.
“When we taxed in the past, we could have taken advantage of those revenues to pay down on the deficit, to pay down on our long-term debt, and we didn’t do that,” he said.
Mr. Paterson’s remarks came at a budget briefing at his New York City headquarters, where he outlined emergency measures his administration is taking to close a gap that has opened in this year’s budget but provided few details about how he plans to tackle next year’s deficit, which has soared to more than $6 billion.
Mr. Paterson, who vowed in a televised speech on Tuesday that he would force government “to do more with less,” said he would shave the operating budgets of his state agencies by 7% and institute a hiring freeze, saving the state $630 million.
Even with the freeze, however, the state is employing 500 more people than it did a year ago.
The governor said he is also asking the Legislature, which he has called back to Albany for a special session next month, to find another $600 million in savings.