The State Comptroller’s office recently delivered some good news to City Hall. They found that the city ‘s revenue forecast over the 2007-2008 biennium will be $8.9 billion higher than expected.

While many politicians are already lining up to spend this money, they should not forget the plight of the taxpayers responsible for creating this tax cornucopia.

In light of this new information, Mayor Bloomberg should increase his proposed $1 billion in tax relief to include all of this unexpected new tax revenue. After all, New York City taxpayers are tired of sitting on the summit of tax mountain.

For seven straight years, New York taxpayers have borne the highest level of state and local tax collections in the country. A few weeks ago, the U.S. Census Bureau released its latest nationwide comparisons on state and local government finances for fiscal year 2005. In that one year alone, New York governments collected $111,107,619,000 in taxes. Combined with personal income data from the Bureau of Economic Analysis, we see that New Yorkers pay 14.68% of their income in taxes. Put simply, for every dollar earned the taxman takes 14.68 cents right off the top.

In addition to paying the most taxes in that nation, New York also has the dubious distinction of paying a lot more in taxes relative to taxpayers in other states. Thus while some folks will undoubtedly complain that cutting taxes by $8.9 billion is too much, in reality, it would hardly change New York’s high tax ranking.

For instance, in FY 2005, trading places with Maine, the third highest state for tax collection, would mean paying $12,112,408,000 less in taxes or $628 for every man, woman, and child. For a family of four, the tax savings would be $2,512. To put this large sum in context, this tax savings would have been more than enough to pay for the elimination of the state sales tax. So moving down two places in the rankings would take a very large tax cut for New York in order to equal Maine’s tax burden.

Additional comparisons really illustrate just how high New York’s taxes really are. What if taxes were just at the national average of 11%? Taxes would be $27,801,700,000 lower or $1,440 per person. For a family of four, the tax savings would be $5,760. This tax savings would have been almost enough to pay for the elimination of the state individual income tax.

At the other end of the spectrum, how much would New York taxpayers save if they were living in a “tax haven” on par with, say, New Hampshire? New Hampshire is ranked number 47 for states with the highest taxes and paid a mere 8.94% of their income in taxes. At that level, New Yorkers would save an astonishing $43,396,271,000 in taxes or $2,248 per person. For a family of four, the tax savings would be $8,992. This tax savings would have been enough to rip out both New York’s state and city income tax code, individual and corporate, by the roots.

An $8.9 billion dollar tax cut would not only make good headway toward lowering state and local taxes, but it would also help many New Yorkers caught up in the web of the federal alternative minimum tax.

One of the key triggers of the AMT is the high level of state and local taxes, especially the income and property taxes which are deductible on the federal income tax. When deductions get “too high,” taxpayers fall into the AMT trap.

As a consequence, the Internal Revenue Service reports that 436,985 New Yorkers were subject to the AMT in 2004 paying an additional $2.1 billion or $4,892 per AMT taxpayer. According to the Tax Foundation, 29% or 127,200 are Gotham residents. Targeting this $8.9 billion toward reducing income and property taxes would have the added benefit of allowing some New Yorkers to escape the AMT net.

Even Senator Clinton has expressed her concerns about the growing AMT burden. In a constituent letter she states, “Once again the Congress enacted a temporary fix to the Alternative Minimum Tax, or AMT, which is affecting more and more middle class families and leading to unexpected and unfair tax burdens. While a long term solution is needed, our AMT ‘patch’ will prevent some 2.9 million New York taxpayers from being caught by the AMT.” Mrs. Clinton echoed her AMT concerns during the Democratic Presidential Debates last week — which ironically took place in tax haven New Hampshire.

At some point, someone in the state has to take the lead in reducing New York’s taxes. Mr. Bloomberg has a painless way to do just that by simply returning this unexpected surge in taxes back to the taxpayer. Doing so would represent the beginning of the long journey down from the summit of tax mountain.

Mr. Moody is president of Economic Analysts, Inc., a public policy consulting group, and has more than 10 years of tax policy experience at the federal, state, and local levels.