Without warning, the old George Patakithe tax cutter and fiscal conservative who took office in 1995seems to have reappeared, thank heaven. In great contrast to New York City Mayor Michael Bloomberg, who decided to balance the citys budget with huge tax increases and virtually no significant cuts in government, Pataki asserted in his recent State of the State address that New York would spend less, not tax more, to solve its budget deficit.
The turnabout by Patakiwho has spent the last several years wooing unions and other liberal constituencies with lavish spending commitmentscomes just in time. New York Citythe engine of the states economyis already groaning under $1.7 billion in new city-inflicted property taxes, the largest tax hike in the citys history. And Mayor Bloomberg would like to impose an added tax burden on the rest of the state. He wants Albany to approve a commuter tax that would take hundreds of millions of dollars more out of the states economy by siphoning tax dollars from residents on Long Island, Westchester, and Rockland who toil in the city.
In contrast to the mayor, who has said that his tax increases wont appreciably harm the New York economy, the governor understands that taxes kill jobs. Let's not say we are going to fight to create jobs and then come to Albany and vote to raise job-killing taxes, Pataki said in his speech. It's a choice between the two. We must choose jobs.”
Although Pataki has been strangely schizophrenic on fiscal policy, in the states direst hour he seems to have remembered how well tax cuts have served New York before. When he took office in 1995, New York State faced a $4 billion deficit. Rather than raise taxes, Pataki cut them significantlyby 25 percent for most New York State taxpayers. To cover the deficit and pay for his tax cut, the governor sharply cut spending, including trimming the states bloated social services budget, by eliminating hundreds of millions of dollars out of New Yorks Medicaid program, by far the biggest, costliest state Medicaid program in the nation.
What followed was an economic expansion the likes of which New York has not seen in recent memory. The states economy did not merely recover, but during the late 1990s, for the first time in more than a generation, New York State actually outperformed the national economy, led by big job gains in New York Citya reminder of how essential state fiscal policy can be for Gotham. From 1996 through the middle of 2001, the state gained 700,000 jobs, a 9 percent growth rate, with the city contributing 425,000 of those jobs.
That experience leaves us hoping that the governor, who still must produce a budget plan that details how he will balance the books, returns to his former prescriptions for fiscal health. Medicaid spending, for instance, has been growing at a clip of more than 7 percent a year in New York State since 1998 and is ripe for cuts.
Whats even more encouraging about the governors message is that it comes just days after President Bush proposed a set of tax cuts that would disproportionately benefit New York. The Manhattan Institutes E. J. McMahon estimates that 30 percent of New York State residents hold dividend producing stocks and they would save about $2 billion from the Presidents proposed cuts the tax in dividends, a much greater boost than other states would receive. Given the high proportion of wealthy individuals in New York City, at least a billion dollars of those tax savings are likely to flow to Gotham. Thats in addition to the boost that such a tax cut would give to the stock market and hence to the financial services industrywhose profits nourish both state and city tax coffers. The last time that Washington passed a tax cut aimed at helping the stock marketthe 1997 capital gains tax cutthe resulting boost in trading and profits for the citys premier industry helped shower billions of dollars in new tax revenues down on New York State and New York City and generated the huge budget surpluses of the late 1990s.
After Mayor Bloombergs imprudent huge tax hikes, New York needs some countervailing fiscal conservatism. In just a few days, Governor Pataki and President Bush have helped to provide it. New Yorkers should support their agenda.