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Gap analysis

At the end of July, the Budget Division in Albany delivered sobering news about the state’s fiscal condition: Based on operating results through the first three months of the fiscal year and updated economic projections, the state would need to eliminate a current-year deficit of $2.1 billion-a gap projected to grow to $4.6 billion in 2010-11.

In response, Gov. David Paterson said he would develop an economic and fiscal recovery plan-to be released in September-that "will eliminate the current-year budget deficit and improve the State’s long-term fiscal health."

"New York, like virtually every state in the nation, continues to experience historic economic difficulties, and further action is needed to control spending," the governor said.

That statement hits the nail squarely on the head. The problem is, Mr. Paterson has made such declarations before. But when push came to shove on the current year’s budget this spring, he allowed the Legislature’s combination of higher taxes and higher spending to sweep past him.

At least half of the tax increase was put on the tab of "higher-income New Yorkers"-many of them being small-business employers, partners and shareholders. Their taxes jumped as much as 31 percent.

If the governor truly tries to reduce state spending, will he be willing to resist legislative efforts to hit up the wealthy yet again?

Let’s hope everyone in Albany remembers that the current-year gap developed despite the hike in tax rates. That’s right: In the first quarter of this fiscal year, General Fund personal income tax collections plunged by 35 percent even though the tax rate jumped.

The weak economy is partly to blame. But higher rates also give wealthy households strong incentive to defer, shelter and otherwise avoid paying more in taxes.

A self-defeating solution to the problem is bound to fail. Let’s hope that the governor’s plan targets the root cause-spending-and that he sticks to his guns.

8/21/09 (c) Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303.

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