Without warning, the old George Pataki—the tax cutter and fiscal conservative who took office in 1995—seems to have reappeared, thank heaven. In great contrast to New York City Mayor Michael Bloomberg, who decided to balance the city’s 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 Pataki—who has spent the last several years wooing unions and other liberal constituencies with lavish spending commitments—comes just in time. New York City—the engine of the state’s economy—is already groaning under $1.7 billion in new city-inflicted property taxes, the largest tax hike in the city’s 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 state’s 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 won’t 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 state’s 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 significantly—by 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 state’s bloated social services budget, by eliminating hundreds of millions of dollars out of New York’s 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 state’s 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 City—a 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.

What’s even more encouraging about the governor’s message is that it comes just days after President Bush proposed a set of tax cuts that would disproportionately benefit New York. The Manhattan Institute’s 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 President’s 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. That’s in addition to the boost that such a tax cut would give to the stock market and hence to the financial services industry—whose profits nourish both state and city tax coffers. The last time that Washington passed a tax cut aimed at helping the stock market—the 1997 capital gains tax cut—the resulting boost in trading and profits for the city’s 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 Bloomberg’s 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.


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