ALBANY – The commission that Governor Pataki appointed to overhaul New York’s tax code is urging him to make the most dramatic tax cuts of his administration.

The seven-member commission, led by CNBC television host and economist Lawrence Kudlow, is recommending that New York slash its top personal income tax rate to 5% from 6.85%, reduce the number of tax brackets to three from five, eliminate the taxes on capital gains and dividend income, and cut several major categories of corporate income tax rates to 5%, according to an executive summary of the commission’s report obtained by The New York Sun. The tax cuts could total at least $3 billion.

The full report of the commission is expected to be released before the governor unveils his budget later this month.

“During the past year, the Commission reviewed the current structure of New York State taxes and concluded that a massive overhaul is in order if New York desires to attract business and investment growth opportunities in the future,” the one-page summary states. “This report provides the Commission’s recommendations for transforming New York’s current tax system into a dynamic, pro-growth structure that provides tax relief to every sector of the State.”

For proponents of supply-side economic policies, the proposals the commission will put forward are an aggressive attempt to make New York a more attractive place to live and invest. They will likely be met with great resistance by Assembly Speaker Sheldon Silver and other Democratic lawmakers, who are demanding that Mr. Pataki spend the state’s predicted $2 billion budget surplus on additional funding for New York City public schools in compliance with the Campaign for Fiscal Equity lawsuit. Mr. Silver has said the extra funding is a moral imperative.

The commission’s proposals may be even too sharp for the governor’s taste. It’s unlikely that Mr.Pataki, for instance, would consent to getting rid of the taxes on dividends and capital gains, which provide a significant supply of state revenue. And he may not make that cuts are as large as the ones being recommended to the top marginal rates on income.

Even so, several of the commission’s proposals were highlighted in the governor’s State of the State speech on Wednesday, in which Mr. Pataki called for eliminating the state’s estate tax and reducing corporate and personal income tax rates by unspecified amounts. Mr. Pataki’s office yesterday refused to comment on the commission’s proposals or on the contents of his yet-to-be-released budget report. A spokesman for the Senate majority leader, Joseph Bruno, said the Republican senator “has never seen a tax cut he didn’t like.”

Looking beyond the administration of Mr. Pataki, who has only one year remaining in office, Mr. Kudlow told the Sun in a telephone interview that it is his “great hope that Republican, Conservative, and Democratic gubernatorial candidates will adopt our commission’s recommendations as the basis for their campaigns.”

One such candidate, John Faso, a Republican who is a former minority leader in the Assembly and who narrowly lost a 2002 race for state comptroller, said the Kudlow commission’s proposals “are very worthwhile and promote economic and job growth,” but cautioned that the “flip side of tax cutting is spending restraint.”

Robert Ryan, a senior aide to another Republican candidate for governor, Randy Daniels, said, the “Kudlow commission is right on target.” Mr. Daniels served as secretary of state in the Pataki administration.

The cuts proposed by the commission to the top tax rates are larger than any tax cuts that New York has passed since Mr. Pataki took office 11 years ago.

In 1995, Mr. Pataki reduced the top rate for personal income to 6.85% from 7.875%. The commission wants the number to drop by almost two more percentage points. The commission’s corporate tax cuts also would dwarf ones that New York has passed during the governor’s administration.

If New York were to adopt the commission’s recommendations, it would go from having the 17th-highest personal income tax rate to the 32nd-highest, according to a source familiar with the commission’s report.

The commission also is calling for what Mr. Kudlow calls “full-cash expensing” for businesses, which would allow them to deduct 100% of purchases instead of deducting the depreciated value, and the elimination of an obscure tax that results in higher payments owed by dual earner couples filing a joint return than by couples who file separately. Mr. Pataki also spoke of eliminating this “marriage penalty” in his State of the State address.

“This package clearly is designed to provide a huge boost to capital investment and capital formation in New York State, which would be an enormous shot in the arm to job creation,” a senior fellow at the Center for Civic Innovation at the Manhattan Institute, E.J. McMahon, said.

In Mr. Pataki’s 2005 State of the State address, he announced the formation of the Commission on Tax Reform and Simplification. The commission’s charge was to recommend to the governor methods for making the state’s tax code “fairer, simpler, and friendlier for everyone – and ensure that New York has a new tax code for the 21st century,” he said.

Other members of the commission include the president of the Institute for Research on the Economics of Taxation, Stephen Entin; tax lawyer Peter Faber; the chief economist to the governor, Stephen Kagann; economist Charles Plosser; a senior managing director at Bear Stearns Fixed Income Research, John Ryding, and the director of research of the Public Policy Institute of the Business Council of New York State, Robert Ward, according to a press release on the governor’s Web site.