City Journal

Rob Norton
Albany's Toxic Taxes
Rich in every other advantage, New York State's economy withers under a thirty-year tax blight. It's time to reverse the tax-and-spend plague now.
Autumn 1994

One morning next summer, a convoy of nine trailer trucks will pull up at a factory on Sweet Hollow Road in Old Bethpage, New York. Movers will load up the machinery, inventories, fixtures, office equipment, furniture, and files and cart it all away to Charleston, South Carolina. Life Industries, a manufacturer of marine cleaners, sealants, and adhesives since 1969, is leaving New York. With it will go 22 jobs—and yet another piece of New York’s industrial base.

The departure of Life Industries is both a symptom of what’s wrong with New York State and a harbinger of the grim economic fate that awaits unless there is a transformation of the state’s taxing and spending policies. To put it bluntly, New York has become a lousy place to do business.

Within living memory, of course, the Empire State had as good a business climate as any place in the United States—or in the world, for that matter. But decades’ worth of Albany’s tax-and-spend arrogance, its tendencies toward budgetary flimflam, and its disregard for the businesses that pay the taxes and meet the payrolls have produced an environment that is driving existing companies away and discouraging new ones from coming. Louise Schmidt, Life Industry’s chief executive officer, is merely being matter-of-fact when she says: “New York doesn’t want you here if you’re a manufacturer. They just want you to keep paying the taxes.”

The service industries that make up the meat of New York State’s economy have been feeling equally unwelcome. Bankers and stockbrokers have been moving “back office” jobs—clerks, secretaries, systems analysts—either to neighboring states, like New Jersey and Pennsylvania, or to more distant states that have purposefully reconfigured their tax codes to attract the business, such as Delaware and South Dakota. The list of departees is a who’s who of banking and finance: Citicorp, Lehman Brothers, MasterCard, Met Life, J.P. Morgan, Moody’s, NatWest, Salomon Brothers.

Some of the reasons for the decline of New York as a business center lie beyond the purview of public policy. Northeasterners have migrated to the sunbelt, drawn to its more clement climes. And the continuing revolution in communications, along with improvements in transportation, has lessened the need for businesses, their suppliers, and subsidiaries to cluster around the older industrial hubs like New York City, Troy, Syracuse, Rochester, and Buffalo. Related to that is the trend towards the globalization of industry, with U.S. companies setting up subsidiaries and production facilities closer to their customers and far from corporate headquarters.

But many of the reasons for New York’s eclipse are a direct consequence of bad policy decisions made in Albany, the main one being the state’s fiscal practices—the way it taxes and spends. The degeneration of fiscal policy began as early as the 1950s. Then the most populous and richest state, New York became lazy and complacent. Politicians embraced the seductive notion that state and local government could be all things to all people, and they assumed they could pay for the expanded services with a limitless supply of tax revenue. As former Governors Malcolm Wilson and Hugh L. Carey put it in the foreword to a recent book on New York’s economic predicament, The Comeback State: “We didn’t know it at the time, but the post-World War II era would be the beginning of a long, profound decline relative to our sister states.”

Just stopping that decline and taking the first steps to reverse it will require heroic efforts. The tax reforms of the last seven years were small steps in the right direction. But the tiny tax cuts enacted last year and the $1.5 billion in further cuts promised recently by the Cuomo administration are too small by at least an order of magnitude. New York needs to cut tens of billions of dollars from both state and local spending merely to restore itself to rough parity with other states.

The fundamental explanation for New York’s relative decline lies in the statistical data comparing its tax burden with those of the other states. That uncommonly high taxes are bad for business formation, job creation, and economic growth is almost intuitively obvious, and eloquently persuasive evidence for the idea can be found in a substantial body of recent economic research. More practical proof can be found simply by talking to the New York business owners and managers who are fleeing or have decided that future expansion will take place in more business-friendly locales. The anecdotal evidence is underscored by opinion surveys and data on migration and job creation.

A convenient place to start is 1958. For one thing, the best series of data comparing taxes among the fifty states begins in that year. More important, anyone familiar with New York at the time will agree that the quality of life in general, and of government services in particular, was far better than it is today or has been at any time recently. The New York State Thruway, the longest and most modern highway in the world, was largely completed. The Saint Lawrence Seaway would open a year later. The state’s educational system was the envy of the nation. From Buffalo to Brooklyn, the streets were safe and clean. Children rode the subways of New York City unafraid and unmolested.

As the chart above shows, New York was a high tax state even then, but look closely at how the tax burden changed in the subsequent decades. The data are adjusted for inflation, so all dollar amounts are expressed in 1991 dollars. They are also shown per capita rather than in total, to adjust for the effect of changes in population. Combined state and local taxes are used, since that is the measure of the tax burden that counts in economic terms. Untangling local and state taxes is difficult for New York, since much local spending—notably for Medicaid and education—is effectively mandated by the State Legislature and by state regulatory authorities. Indeed, a recent study by the New York Association of Counties estimated that 60 percent of the average county’s spending is effectively directed by Albany. Local governments, for example, are required to use separate contractors for plumbing, heating, and electrical work, even when it is more expensive than using a single contractor. School districts are compelled to pay bonuses to teachers under the Excellence in Teaching program, even if the local school board doesn’t think bonuses are merited and would prefer to spend the money on something else, such as books. Local fire departments are required to give trainees forty hours of instruction as peace officers. Other studies have estimated that New York controls more local spending than any other state. In addition to data on the national averages, the average of the ten most populous states is given as well, since these urban states share more common characteristics with New York.

Back in 1958, real total taxes per capita in New York were $1,140 in 1991 dollars, 37 percent higher than the national average, and 34 percent higher than the average of the ten most populous states. New York taxes grew faster than these averages throughout the 1960s—rocketing upward in the latter part of the decade and in the early 1970s. By 1973, New York’s per capita taxes were 55 percent higher than the nation’s, and 63 percent higher than the average of the ten most populous states.

The 1970s saw the tax burden actually fall, reflecting both economic distresses such as the recession of 1973-75 and the fiscal rectitude of the Carey administration, which held the statehouse and the line on taxes from 1975 through 1982. But taxes again began growing much faster than the national and big-state averages in the mid-1980s. Tax growth leveled off late in the decade. Nevertheless, in 1991 (the most recent year for which these uniform data are available) New York’s tax burden stood at $3,340 per capita, 58 percent higher than the nation as a whole and 66 percent higher than the big-state average.

Proponents of high taxes sometimes argue that the simple measure of total per capita taxes is misleading, because it fails to recognize that on average people have become richer over time and thus more able—perhaps even more willing—to pay higher taxes in return for more and better services. To answer this objection, the chart above shows total state and local taxes per $1,000 of income, which effectively adjusts the data to reflect changes in wealth. Again, the tax burden rose much faster in New York than elsewhere, especially from the late 1960s into the mid-1970s. In 1958, New York’s taxes per $1,000 of income were 9.8 percent higher than the national average, and 14 percent higher than the ten most populous states. The gap widened to 39 percent above the national average in 1976 and has narrowed slightly since then. In 1991, New York’s taxes per $1,000 of income were 34.5 percent higher than the national average, and 41.5 percent higher than the average of the ten most populous states.

Albany has worked all the levers of tax policy to accomplish this increase in the tax burden. The charts opposite, on page 13, break out per capita income taxes, property taxes, and sales taxes for New York, the nation, and the ten biggest states. According to a study by economist Alvin Rubushka, New York’s real income taxes per capita—today more than double the national average—grew most sharply relative to the other states from 1983 to 1987. In the other two major categories of taxes, property taxes and sales taxes, New York has maintained a considerable lead—a quarter to a half again as high as the rest of the nation.

These comprehensive measures of taxes all point to a single conclusion: the state’s tax burden is significantly higher than the burden for the nation as a whole or for other large states. The data cut through the fiscal fog that emanates from Albany. Look at the tax reductions of 1987. The year before, the Reagan administration’s federal tax reform simultaneously cut federal tax rates and broadened the base of taxable income by doing away with many tax loopholes and by limiting deductions. Since New York uses federal taxable income as the base on which it imposes state and local taxes, the effect of raising taxable income by reducing deductions would have been a huge tax increase for New Yorkers, unless New York cut its own tax rates. Instead of promptly lowering rates to offset the tax windfall, Albany announced a five-year phase-in of lower rates, from a top marginal rate of 8.75 percent to 7 percent, which was supposed to be in effect by 1991. But the governor and legislature quickly moved to postpone the rate reductions, and the 7 percent top rate has still not taken effect (it is scheduled to go into effect next year). Meanwhile, inflation has pushed taxpayers into higher brackets, partly offsetting the rate reductions. The derailment of the 1987 tax cuts has cost New Yorkers at least $1.8 billion, according to an analysis by the Republican staff of the Assembly Ways and Means Committee. For a family of four with an income just over $45,000 per year, this translated into additional state income taxes of $237 in 1991.

The most basic idea of economics suggests that higher taxes would discourage business activity: raise the price of something, and you’ll get less of it. In a free country such as the United States, you would also expect businesses to migrate to lower-tax locales. Nevertheless, up until fairly recently economists generally thought that state and local taxes had little effect on business location and development compared with the effect of access to markets, suppliers, and labor. A considerable body of research done in the 1980s and 1990s has shifted the consensus dramatically. Timothy J. Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research, an independent organization in Kalamazoo, Michigan, surveyed the field in 1992 and concluded: “This recent research suggests that state and local taxes have much stronger effects on the economic development of states, metropolitan areas, and small jurisdictions than was once believed.”

These studies vary widely in the kinds of data they use, the geographical comparisons they make, and the time periods they cover. Allowing for the differences and averaging the results, Bartik concluded that a 10 percent cut in tax rates—from 5 to 4.5 percent, for example—will increase business activity by 1 to 8.5 percent. One study estimated that a 10 percent increase in a locality’s property tax rate—from, say, 5 to 5.5 percent—will decrease the property tax base by 1.5 percent over time. Another found that small changes in tax rates for certain kinds of businesses can lead to anywhere from a 1 to a 10 percent decline in the number of start-ups in that industry.

The research shows that business location decisions are especially sensitive to tax rate differences among jurisdictions within a metropolitan area, such as when a company has decided to locate in the tristate area and must choose between New York, New Jersey, and Connecticut. Bartik, for instance, took the average result of seven studies and found that they suggest that a given jurisdiction’s 10 percent cut in property taxes would increase its level of business activity by 17.6 percent over twenty years.

State taxes also affect foreign direct investment (purchases of companies, buildings, and land) in the United States, which provides an important source of capital to fuel the economy. James R. Hines Jr., an economist at Harvard’s Kennedy School of Government, recently compared investments by companies from nations that give home-country tax credits for U.S. state taxes with those from nations that do not. He found that a 1-point difference in state corporate tax rates—going from 5 to 6 percent, for instance—meant that foreign companies that could not write off taxes would invest between 7 and 9 percent less in that state, “suggesting that state taxes significantly influence the pattern of foreign direct investment in the U.S.”

So much for theory. Now look at the question of tax burdens from the point of view of Louise Schmidt, chief executive of the boat care product manufacturer that is weighing anchor for South Carolina. Real estate taxes on the firm’s 23,500-square-foot plant are currently $82,000 per year. Taxes for the new, slightly larger plant in Charleston are $14,000. “That’s all bottom line,” says Schmidt. “It’s really hard to justify a profit differential like that.” Many other costs will fall as a consequence of the move. Life Industries uses a lot of electricity. Costs per kilowatt-hour, Schmidt figures, will fall by half. The main reason for New York’s high energy costs is that state and local governments use energy companies as tax collectors. On average, state and local taxes make up a fifth of energy utility bills in New York. For electricity customers, the tax burden is twice the national average. The broader measures of the tax burden confirm Schmidt’s wisdom in moving. The basic corporate tax rate is 5 percent in South Carolina compared to 9 percent in New York. By the broadest measure of tax burden, New York’s total tax revenue per capita was $3,337 in 1991, more than twice South Carolina’s $1,561.

New York’s legislature has created a hodgepodge of hidden taxes, add-ons, and supposedly temporary tax hikes to raise revenue surreptitiously. Some are almost comical, such as the ten-cent-per-quart “lubricating oil tax” that was enacted in 1990 to pay the debt service on new environmental bonds. (The bonds were never issued and the tax was finally repealed this year.) Others are just as insidious. Take telephone taxes. A 1992 study by Wellesley economist Karl E. Case found that state and local taxes added up to 17.9 percent of Bell company operating revenues in New York. That’s twice the 9.2 percent average for the ten largest states. The rate for California was only 4.8 percent. A “business tax surcharge,” enacted in 1990 and boosting taxes on business income by 15 percent at the stroke of a pen, was supposed to disappear in 1993. This year’s budget postponed the phaseout to 1997, adding a total of $122 million to the state’s corporate tax bill.

In some cases, these shenanigans have serious unintended consequences for New York’s competitiveness. In 1983, as part of a $1 billion revenue package, the state imposed a new petroleum gross receipts tax, billed as a temporary levy that would soon fall to lower levels and end by 1985. Instead, it was made permanent and later transmogrified into the Petroleum Business Tax (PBT), currently about 15 cents per gallon of gasoline. The tax rate was linked to an index of oil prices. Since oil prices have plummeted in recent years, tax revenues should have declined, but in the last three years, the legislature voted to freeze the PBT index rather than permit the scheduled drop (it would have fallen 20 percent in 1995).

Travel Ports of America is a Rochester-based corporation that runs truck stops in New York and six other states. The company’s revenues last year were $137 million. These aren’t your corner gas stations. They typically feature repair shops, restaurants, convenience stores, and motels. It’s a competitive business: long-distance trucks typically can go 2,100 miles without fueling, so truckers can be choosy about where they tank up.

Travel Ports employs some six hundred New Yorkers. Were it not for the state’s inhospitable business climate—especially the stiff fuel taxes, which push the retail price of diesel oil to $1.29 per gallon in New York versus $0.96 to $1.17 in nearby states—Travel Ports would be adding an additional 125 jobs next year. The company had signed a contract to purchase land for a new truck stop in Batavia, near the New York State Thruway, but bailed out when the legislature passed the 1991 fuel tax hike. Instead, Travel Ports purchased a 72-acre site 110 miles further west on the same road, in Erie, Pennsylvania, and the company is spending between $5 million and $6.5 million building the new truck stop there. The facility will open for business next summer. Says Travel Ports president John Holahan: “We’re looking to expand in all the states we’re in except New York.”

The fuel tax has had wider detrimental effects on the trucking business in New York. Twenty years ago, several of the largest trucking firms in the nation were based in the state. Ten years ago, there was still one in the top hundred. But now all have fled or have gone out of business, taking their once familiar names—Penn Yan, Red Star—with them. Their places haven’t been filled by newcomers, and today not a single one of the top three hundred trucking firms is based in New York.

Another businessman who has ruled out further expansion in New York is William F. Allyn, chief executive officer of Welch Allyn, a manufacturer of medical diagnostic equipment based in Skaneateles. With sales of over $200 million per year, Welch Allyn employs 1,200 people in New York and another 600 in plants in North Carolina, New Hampshire, Ireland, and Germany. Allyn has been encouraged by the recent tax reduction efforts from Albany. But the state’s overall tax burden, especially the taxes levied on energy, still make New York uncompetitive in Allyn’s view. “We’ve been here eighty years, and it would take a lot to get us to leave, but we need to compete on an economic basis. We wouldn’t look favorably on expansion in New York. It’s not a threat; it’s a reality, and if someone could prove me wrong I’d be glad to listen.”

Surveys of New York business people turn up even more negative assessments of the state’s business climate. In a recent poll of 122 companies in western New York, conducted by the Greater Buffalo Development Foundation, 46 percent said they would not undertake a major expansion project in New York—with taxes the most frequently cited reason. A 1993 survey of more than eight hundred executives by the Business Council of New York State found that nearly three out of four consider the level of state and local taxation a negative factor influencing their ability to grow in New York. Nearly 42 percent called the climate for doing business in New York much less favorable than in other states; 38.7 percent said it was somewhat worse. When asked where their companies would add jobs if they were able to, 16 percent of applicable companies said they would locate new jobs outside the state because of the poor business environment. The manufacturers, as distinct from the service providers, were even more downbeat: one-fifth said they would expand elsewhere. Indeed, polls of business sentiment by the Business Council have been so negative that the organization has sometimes suppressed the results for fear of further damaging the business climate. “We have to walk a fine line between pointing out the problems and planting ideas in people’s minds,” says Robert B. Ward, the association’s research director.

What’s bad for business, of course, is bad for jobs, and job growth in New York has been far weaker than in the rest of the nation or in other big states. As the chart on page 16 shows, since 1958, employment in the United States has grown 115 percent. In the other big states, jobs have grown 122 percent on average. New York’s job growth is a feeble 28 percent. What is especially alarming about these data is that since 1989 New York has been losing jobs even while other states have recovered. Data from the Internal Revenue Service, which tracks migration between states based on the number of taxpayers and their dependents claimed on federal income tax returns, provide a close-up picture of New York’s relative decline in recent years (see chart on page 17). Some 140,000 more taxpayers and family members have been leaving the state each year than have been moving in.

What does New York need to do to make itself competitive again? To create an atmosphere where businesses will at least consider starting up new operations or expanding existing ones? Where manufacturing companies will feel welcome, where the existing business base won’t be lured away by other states, and where job growth can reaccelerate to the typical speed of other states?

By far the most important thing is for New York to make deep, wide cuts in spending and taxes. The only effective way to do this is to decide on overall targets and then work backward and downward from there, apportioning the reductions among programs and policies. This is the standard corporate model for cost cutting, applied by thousands of businesses over the past dozen years as American companies have scrambled to regain their own competitiveness. It is also the way the Federal Government has managed to achieve the modest deficit reductions of the last five years.

How far must New York cut taxes? The only sensible goal is to reduce per capita total state and local taxes to the average of the other large states. This implies major surgery, amounting to tens of billions of dollars in tax and spending cuts, not the kind of mild palliative prescribed this summer by the Cuomo administration. Total state and local spending in New York was $98.5 billion in 1991, so each 10 percent reduction in spending equals nearly $10 billion. Reducing the tax burden to the average of other large states would not give New York any big fiscal advantage over its competitors for new and exiting businesses; it would merely take away the handicap New York has been laboring under, which unnecessarily restrains the extraordinary creative and entrepreneurial energies which the state has in abundance.

Perhaps the most ambitious and sensible of the many plans for cutting New York’s tax burden is a draft report by the Private Sector Commission on Cost Control, which was created by the governor and the legislature in 1990. A “confidential discussion draft” was leaked in 1991, but the report was never approved by the commission and was effectively buried as politically unacceptable. The goal set forth in the confidential draft was to cut or contain the growth of costs enough to bring state and local government spending down to within 10 percent of the average of the other ten largest states within five years. Then, as now, this would mean a 30 percent reduction in combined state and local budgets.

That’s an ambitious but not outlandish goal. When New Jersey governor Christine Todd Whitman pledged during her 1993 campaign to reduce state income taxes in New Jersey by 30 percent, she was met with derision by political opponents and by most of the media. But by July of this year she had pushed through the first two cuts, 5 percent and 10 percent respectively, and she vows to enact another two rounds to reach the 30 percent goal by 1997. Although Whitman’s tax-cutting plan is the boldest recent initiative, several other states are also cutting taxes with gusto. Michigan, for instance, is replacing property taxes with sales taxes as its method of school funding, and in the process creating an overall tax reduction of several hundred million dollars. Arizona has cut taxes in each of the last three years. Other states with planned tax reductions include Massachusetts, South Carolina, Mississippi, and Virginia.

Massive tax cuts could only happen in New York in the presence of powerful, single-minded political leadership. New York has farther to go than New Jersey or any of the other states that have launched tax-cutting programs, given its outsized tax burden. Since nearly half of the taxes on New Yorkers are levied at the local level, a true tax revolution must include large cuts in property taxes as well as in income and sales taxes. Coordination of the tax cuts would be necessary to ensure that state taxes were not merely shunted down to the local level.

The austerity implied by a 30 percent tax reduction would force New York State and its cities, counties, and villages to rethink the way they spend money. There are no secrets about where the major spending cuts would have to come from. The top three are medical spending and welfare costs, primary and secondary education, and general government overhead. Former New York City mayor Edward I. Koch is characteristically pithy on the subject of New York’s spending: “We’ve got to reduce the quantum differentials in the services provided by the City and State of New York compared with other states. We provide Cadillacs and they provide Fords. I say, let’s have Fords.”

Take Medicaid. New York’s total spending on Medicaid in 1991 was nearly nine times the national average. To put it another way, with 7 percent of the nation’s population and less than 10 percent of all Medicaid recipients, New York spent nearly 20 percent of all Medicaid dollars. New York is one of the few states that provides nearly all the optional Medicaid benefits that the federal government permits—loading up the Cadillac, to extend the metaphor, with leather seats, extra chrome trim, and the deluxe CD player. New York also has unusually generous eligibility rules that, among other things, permit well-to-do and middle-class individuals to get subsidized nursing home care. New York Medicaid patients spend more time in the hospital than patients in other states, and the fees paid for nursing and hospital services are considerably higher than in many other states.

The federal comparative data used in the chart on page 18 show Medicaid costs as part of two categories—health and hospitals and public welfare—and the chart reveals how far out of line New York’s costs have risen. Medicaid grew faster than any other single spending program in the 1980s.

Per capita welfare spending, just over half of it for Medicaid, is twice as high as the top-ten average; health and hospital spending is 80 percent higher. Savings of $13 billion—about 13 percent of total state and local spending—would result if both these spending categories could be reduced to the U.S. average.

The solutions to the Medicaid cost explosion are also well understood. New York needs to tighten eligibility requirements and reduce the number of optional services. The biggest reforms the state could undertake would be to encourage more competition among Medicaid service providers and to accelerate efforts already under way to move Medicaid recipients into managed-care programs. Other states have successfully reined in Medicaid spending, notably Massachusetts and California. (The turnaround in California is recounted by Edwin S. Rubenstein in “Emergency Surgery for Medicaid,” City Journal, Spring 1991.)

The state’s inefficient and costly system of primary and secondary education is another area where large savings are needed. New York spent $1,211 per capita on primary and secondary education in 1991, 40 percent more than the national and big-state average. Spending has continued to increase, even as school enrollment has fallen and test scores have worsened. Cutting spending on elementary and secondary education to the U.S. per capita average would produce $6.3 billion in savings—a 6 percent reduction of total state and local spending.

One major reform could help deliver the needed savings: cut back and eliminate state educational mandates. A 1991 report by the education department estimated that 71 percent of local school district budgets are controlled by state mandates. This prevents parents, teachers, and local school officials from finding efficient ways to deliver services at lower cost. The most direct way to cut school spending is to eliminate overhead. Over the past twenty years, enrollment has dropped by nearly a million, and the number of teachers has decreased by 3 percent. But the number of administrators and other nonteaching professionals has increased by 13 percent. Albert Shanker, president of the American Federation of Teachers, has said there are more school administrators in New York State than in all of Western Europe, and more in New York City that in France.

The problem of overstaffing is, in fact, rife throughout New York state and local governments. Overall, New York had 1.1 million full time workers on state and local payrolls in 1991, or 622 per ten thousand population in 1991, compared to an average of 523 nationwide. Their average annual earnings were $35,568, versus a national average of $29,748. Reducing the number of employees to the national average would mean a 16 percent reduction of headcount—well within the range that many companies have been forced to impose over the last decade—and would save about $6.4 billion per year. Cutting the pay of the remaining employees to the national average would save a further $5.4 billion. It’s hard not to believe that major streamlining is possible, especially given the duplication and overlap of services that have grown up over the years. The Private Sector Commission on Cost Control identified many of these: for example, in the field of mental health, the Office of Mental Health, the Health Department, and the Office of Mental Retardation and Developmental Disabilities are all overseen by the Commission on Quality Care for the Mentally Disabled.

Even allowing for some double counting of cuts from personnel reductions, the spending cutbacks in just the few large categories enumerated here add up to well over 20 percent of total state and local spending. Critics of state spending, such as the Empire Foundation, Citizens for a Sound Economy, and the Business Council, have identified billions of dollars worth of other potential savings in programs such as the prison system (spending per prisoner is 40 percent higher in New York than in other large states) and the public universities (which offer subsidized tuition to the wealthy as well as to the needy). Cutting state and local spending by 30 percent over five years may be hard. It is far from impossible.

Fundamental fiscal reform on this scale will require what psychiatrists call an attitudinal change in Albany, where the legislature over the years has often looked more like a bipartisan pig trough than a deliberative body. Liberals don’t come down too hard on Republicans who want higher spending for suburban schools, so long as the conservatives don’t raise a ruckus about welfare outlays, and so on ad infinitum. The quintessence of the Albany attitude is the annual rite known as members’ items. These are home district goodies doled out as patronage by party leaders in the final moments of the budget negotiations. This year, the legislature approved $48 million in such spending, split 50-50 between each house. This year’s list, released literally in the dead of night, included such items as a $2,500 grant to repair the fence around a roller rink on Long Island and $5,000 to pay for advertising for a glider museum near Elmira.

There is always a constituency for this kind of spending, as well as for the bigger, more serious spending categories such as Medicaid, welfare, and education. As George Bernard Shaw put it, “The government that robs Peter to pay Paul can always depend on the support of Paul.” But in New York’s case, the Peters—the businesses and individuals that pay the taxes—increasingly have had enough and are voting with their feet. If New York persists on its present path, the business base will continue to erode, job growth will stagnate, and the tax base will eventually shrink. The per capita burden will then have to rise even more, simply to support the same level of spending that already exists.

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