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November 21, 2002

McMahon: If city raises taxes, it's even more important that Albany hold the line

New York City's apparent determination to raise taxes makes it even more important that to avoid state tax increases, a top expert on city and state finances has told The Council.

"In the years ahead, New York City's problems will case an especially large shadow over Albany," said E.J. McMahon Jr., senior fellow at the Manhattan Institute, a New York City-based think tank.

McMahon reviewed the fiscal outlooks for the city and state at The Council's annual Issues Conference Nov. 20 in Albany.

"The city's budget problem is now so big that we have to go back to 1975 to find comparisons," McMahon said. He said the city faces a budget gap estimated at $1 billion in this fiscal year, with another shortfall estimated at $6 billion looming in the year ahead.

Mayor Michael Bloomberg's recent tax proposal, including a new $2.3 billion commuter tax and a $1.3 billion cut in the city's personal income tax on residents, is unlikely to be approved in Albany, he said.

Nonetheless, "since the problem won't go away any time soon, the city can be expected to continue pressing that position in years to come."

McMahon said The Business Council should expect tax-and-spend advocates to continue pressing Albany for higher taxes. Organized labor, for example, can be expected to intensify pressure for a multi-billion-dollar increase in the state's personal income tax.

An economic model developed for the Manhattan Institute suggests that this would cost New York State some 46,000 jobs, McMahon noted.

Both the state and the city budget challenges reflect in part their increasing reliance on revenues from the personal income tax. For example, during the administration of Gov. Cuomo, this tax accounted for about half of state revenues; today, it represents 60 percent of state revenues.