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October 4, 2002

Tax-and-spend advocacy group urges $3 billion tax increase

A vocal advocate of higher taxes and more government spending is urging Albany to increase taxes by as much as $3 billion - even though its analysis acknowledges that tax increases can be harmful to an economy.

The Fiscal Policy Institute (FPI), which is funded primarily by public-employee unions in Albany and which also receives funding from left-of-center foundations, made the call in New York State's 2003-04 Economic and Budget Outlook, a brief report published on its Web site, www.fiscalpolicy.org.

The report acknowledges that declines in projected state revenues for next year reflect direct and indirect effects of the Sept. 11 terrorism.

But it also blames New York's "overly generous" tax cuts of recent years, saying that state lawmakers would have an additional $12 billion of taxpayer dollars to spend this year if lawmakers had not enacted tax cuts approved beginning in 1994 and continuing through 2000.

Citing academic economists, the report says that both tax increases and spending cuts are harmful to an economy in recession -- but argues that the adverse effect of a tax increase "may be smaller than the adverse impact of a spending reduction."

To sustain government spending in New York, the report recommended that New York:

. Add a .7 percent surcharge on the portion of personal income over $100,000, with another .7 percent surcharge on income over $200,000. This would tap taxpayers for $2.7 to $3 billion a year, the report estimated.

. Increase New York's alternative minimum tax on corporations.

The report noted that FPI was created after a predecessor coalition led the successful effort to convince Gov. Mario M. Cuomo to delay the implementation of income-tax cuts approved by lawmakers in 1987.

Analysis by The Public Policy Institute of New York State, the research affiliate of The Business Council, has shown that that policy decision, coupled with later decisions to increase taxes, prompted the loss of hundreds of thousands of jobs in New York State during the recession of the early 1990s.

In that national recession, Institute analysis has shown, New York's decision to increase taxes to cope with revenue shortfalls backfired, making the state's recession longer and, in terms of job losses, harsher than the nation's.

Institute studies have also shown that New York's economic fortunes finally improved only after it reversed course and began reducing taxes in the mid 1990s.

New York State's per-capita state and local government spending is the second highest in the nation, behind only Alaska and 51.8 percent above the national average, according to Just the Facts, The Public Policy Institute's annual compendium of data on key indicators of New York's economic health and competitiveness compared to other states and the nation as whole.