Mayor Bloomberg has to do an about-face and lower taxes if New York City is going to remain competitive and stop hopping from one yearly budget crisis to another, according to a Cato Institute report to be released today.

“The city can no longer coast on its impressive business history and must cut taxes to attract new employers,” the chief economist for Cato’s Small Business Survival Committee, Raymond Keating, wrote in his 18-page report. “Mayor Bloomberg and other officials need to find creative ways to downsize the budget.”

New Yorkers are among the highest taxed citizens in the nation. The city not only imposes traditional local taxes, but it also imposes levies that are traditionally the bastion of state governments such as sales taxes, personal income taxes, corporate income taxes, and unincorporated business taxes. In the past two years, New Yorkers have faced increases in property taxes, income taxes, sales taxes, and tobacco taxes.

The turn of events flies in the face of Mr. Bloomberg’s read-my-lips pledge not to raise taxes. In his January 2002 inaugural address, he said the city “cannot repeat the mistakes of the past. We cannot raise taxes. We will find another way.”

Between the local economic fallout and the national economic slowdown, critics say, that other way eluded him. Six months into his term he signed an 18-fold increase in the cigarette tax into law. The move created a black market in cigarettes.

Faced with budget gaps in fiscal 2003 and fiscal 2004, Mr. Bloomberg then raised the property tax 18.5%.It was the largest tax increase in the city’s history.

Then last year, New Yorkers were socked with an income tax increase and a quarter-point jump in the sales tax. Now income above $500,000 is taxed at 4.45% and incomes starting at $100,000 are taxed at 4.25%. The top rate used to be 3.65%.

Add the state income tax rate to the city’s new totals and New Yorkers with taxable incomes over $500,000 are paying 12.15% in state and city income taxes, according to the budget newsletter Fiscal Watch.

Single taxpayers making $100,000 and married couples making $150,000 are paying 11.75%, it said. On top of that, the sales tax is 8.625%.

That, analysts said, has put the brakes on New York City growth. A study by the Federal Reserve Bank of Atlanta looked at state and local taxes and state income growth from 1960 to 1992. It found that high marginal tax rates and high overall tax levels were negatively related to economic growth.

A 1991 study by the New York City comptroller’s office found high tax rates had hobbled the city. “The rapid increase in the tax burden, which began in the 1960s and continued through the mid-1970s, was a factor that contributed to the economic downturn that led to the city’s famous fiscal crisis of 1975-78,” it concluded.

“We’ve long said taxes are too high and it makes us uncompetitive,” said the chief economist at the Citizens Budget Commission, Marcia Van Wagner. “The last two years, with 9/11 and the recession, it was difficult to balance the budget without a tax increase. That being said, Mayor Bloomberg hasn’t been aggressive enough” in cutting city spending.

In a meeting to approve Mr. Bloomberg’s budget last month, the city’s Financial Control Board voiced the same concern. While members were congratulating Mr. Bloomberg on his stewardship of the city out of one side of their mouths, they worried aloud about how the mayor could keep the city in the black next year without drastic cuts in spending.

In a budget analysis released last month, Manhattan Institute fellow E.J. McMahon made a similar point, showing that city spending is on track to grow 10% under the new 2005 budget. If the trend doesn’t change, the overall increase in city-funded expenses in Mr. Bloomberg’s first three years may well reach 21%, he said.

The problem goes back further than that. City spending during the past decade has been steadily rising. Expenditures are projected to increase 7.9% in fiscal 2004, to $47.8 billion compared with the year-earlier period.

Tax increases don’t close budget gaps, the Cato report said; they merely fuel spending. Case in point: Mr. Bloomberg’s latest budget got a surprise infusion of $791 million because of Wall Street’s rebounding profits; increased city spending gobbled up the windfall.

Mayoral aides, like the communications director, William Cunningham, point to over $3 billion in cuts over the past three years.

They say the increase in spending comes from Medicaid and pension payments over which the mayor has little control. Strip those mandatory payments out, and city spending has been flat.

That isn’t good enough, the Cato report concluded. “The continual reappearance of ‘budget gaps’ in the city’s finances reveals that there are structure problems on the spending side of the budget, not a shortage of revenues,” the report said. “Although the New York economy started to recover in 2004, the 200,000 jobs lost since 2001 may never come back unless the city’s economic climate is more attractive.”