Dec. 7 (Bloomberg) -- New York Governor Andrew Cuomo would cut by almost half the state’s projected $3.5 billion budget deficit under a plan he hammered out with top lawmakers to raise taxes on top earners.
The Legislature may vote on Cuomo’s plan as soon as today, said Assembly Speaker Sheldon Silver, a Manhattan Democrat, and Scott Reif, a spokesman for Senate Majority Leader Dean Skelos, a Republican from Rockville Centre on Long Island. The proposal would raise taxes on those who earn $2 million or more and cut rates for those who earn $300,000 or less.
“As a matter of simple math, there is not an intelligent or productive way to close the current gap without generating revenue,” Cuomo said yesterday in a video statement.
The proposal also would establish a fund to combine $1 billion in public cash with money from nongovernment pensions and investors to improve New York’s infrastructure. Employers in the 12 counties surrounding New York City would also see a cut in the portion of their payroll taxes used to support the Metropolitan Transportation Authority.
Cuomo released the plan yesterday in an e-mailed statement jointly sent by Skelos and Silver.
“This job-creating economic plan defies the political gridlock that has paralyzed Washington and shows that we can make government work for the people of this state once again,” Cuomo said in the statement.
If approved by lawmakers, the deal would become the latest legislative victory for Cuomo, a 54-year-old first-term Democrat. During the session that ended in June, the governor pushed through an on-time budget that closed a $10 billion gap, an ethics package, a property-tax cap and a bill to permit same-sex marriage in the third-most-populous U.S. state.
Last week, the governor said revenue is “collapsing” amid shrinking Wall Street bonuses and job cuts in the finance industry, which accounted for more than 20 percent of wages paid by businesses in 2010. New York has projected a $3.5 billion deficit in fiscal 2013, which begins April 1, and a $350 million gap this year. It’s one of four states, along with California, Missouri and Washington, to report midyear budget deficits, according to the National Conference of State Legislatures.
The new tax rates would generate $1.9 billion in additional revenue while also cutting levies for 4.4 million middle-class residents by $690 million, Cuomo said. About $1.5 billion of that would be put toward the deficit, said Morris Peters, a Budget Division spokesman. About $400 million of new revenue would be spent on a youth jobs program and flood-recovery efforts. A 2009 surcharge on those who earn $200,000 or more that’s set to expire Dec. 31 generated about $4 billion a year, Peters said.
Without the expiring surcharge, individuals who earn $20,000 or more are taxed at 6.85 percent, the same as someone who made $20 million. The proposed changes would create new income brackets. The first, from $40,000 to $150,000, would be taxed at 6.45 percent. Those who earn $150,000 to $300,000 would have a 6.65 percent rate, while there would be no change for those making $300,000 to $2 million.
The tax on the top bracket, $2 million or more, would rise to 8.82 percent and expire in December 2014. Under the expiring surcharge, known as the millionaire’s tax, those earning more than $500,000 are taxed at 8.97 percent. Cuomo opposed a push by fellow Democrats to extend the millionaire’s tax.
“New York has left the middle class with an undue burden which also hinders economic recovery,” Cuomo said in a Dec. 5 statement. “Fairness dictates that the more you make, the more you pay and the higher your income, the higher your rate.”
Skelos will have to persuade fellow Senate Republicans who have previously stood against tax increases. Because the plan cuts taxes on the middle class and reduces the rate for wealthy earners to below the expiring surcharge, Skelos can describe it as a tax cut.
“This comprehensive plan will reduce the tax rate for middle-class families to their lowest levels in more than 50 years,” Skelos said in the joint statement.
The overhaul has support from the Civil Service Employees Association, the state’s largest union, President Danny Donohue said in an e-mailed statement.
“The agreement will produce practical benefits for all New Yorkers,” Donohue said. In August, the labor group agreed to wage freezes and furloughs to cut costs. The deal, combined with an agreement with the Public Employees Federation, the state’s second-biggest union, helped save $450 million.
The tax deal is a “step in the right direction, but unfortunately falls short in obtaining the goal of a fair tax system,” federation President Ken Brynien said in a statement.
‘Wind of Change’
On Dec. 3, the federation encouraged members to go door-to-door to build support for extending the expiring millionaire’s tax. Called “Knock for the 99%,” the campaign played on a reference to the Occupy Wall Street movement, which has seized on economist Joseph Stiglitz’s research that found the richest 1 percent of Americans control 40 percent of the wealth.
The deal “acknowledges that there’s a wind of change out there and is a reflection of that,” said Assembly Majority Leader Ron Canestrari of Cohoes after a Democratic caucus yesterday.
The changes are part of a wider initiative to stimulate the economy that includes the infrastructure fund and an agreement among Cuomo, Skelos and Silver to put up for a vote a constitutional amendment allowing casino gambling.
That would help “recapture revenue that is currently being lost to other states,” Cuomo wrote in a Dec. 4 opinion article. Indian casinos already operate within New York’s borders, and slot machines are allowed at race tracks.
Neighboring New Jersey has casinos in Atlantic City. Last month, Massachusetts Governor Deval Patrick, a Democrat, signed a bill that allows three casinos to open.
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