New York Fed Suggests Taxing the Rich to Counter State Deficits

Federal Reserve Bank of New York researchers said states facing budget deficits should consider temporarily raising income taxes on their wealthiest residents and relying more on sales taxes to make up the shortfalls.

In a report issued today focusing on the recession’s impact on the budgets of New York and New Jersey, the Fed branch also recommended the states create “rainy day” funds to protect against future revenue gaps, plan in advance for spending cuts and reduce reliance on personal income taxes, which are affected by changes in the economy.