New York Gov. David Paterson revealed his budget proposal for the next fiscal year earlier this week. He deserves credit for the care with which he managed budget cuts; though some social programs are being cut, he's not really going after schools or entitlements. And given that he is legally required to introduce a balanced budget, and the state is facing massive losses in revenue from the cratering financial services industry, cuts were probably unavoidable. But when it comes to Paterson chose to increase revenues, his choices were much less sensible.
Basically, he seems to have tried to mask the fact that he's increasing taxes by dividing them into 88 fees and special sales taxes on things like taxis, non-diet sodas, and movies -- the main burden of which seems likely to fall on the middle class. This was probably primarily a political calculation. But I think Patrick Ruffini, despite his general neo-Hooverite policy recommendations, makes a pretty good case that the sheer volume and absurdity of the increases (does anyone really want to be on-record as supporting a tax on iTunes?) will backfire and end up doing more political damage than a straight forward income-tax increase would have. The details of the taxes are endlessly mockable, and that's not good if you're David Paterson -- those details give his opponents 88 ways to criticize him, each more novel than, "Hey, he raised our taxes!"
And on a policy level, too, this seems like a fairly bad idea. While most of the new taxes are on things consumed by people who are at least doing decently, they will also hurt people who provide those things, like taxi drivers, movie theater employees, and so on. And instead of falling primarily on the already well-off who, despite the recent woes of the financial industry, still get a wildly disproportionate share of our nation's wealth, they will fall mainly on the middle class. Finally, as Nate Silver points out, taking consumption rather than income discourages spending relative to savings, the last thing you want to do in a recession.
Not to mention that New York has another option, though not necessarily a good one. Unlike most other states, New York only requires that the governor submit a balanced budget, not that the final budget passed by the legislature and signed by the governor actually be balanced. While states are much less well-placed than the federal government to do deficit-based stimulus spending, stimulus is needed right now and it seems reasonable to take on some additional debt to provide it, particularly when federal funds for state budgets may very well only be months away.
--Sam Boyd
