FPI Answers How to Balance the Budget (Fairly)

The Fiscal Policy Institute's Frank Mauro and James Parrott lay out the case succinctly in the Gotham Gazette:

As the economic damage ripples out from Wall Street, Gov. David Paterson has proposed drastically slashing state spending. School aid, health care, SUNY and CUNY, child care, program for the elderly, homeless prevention and long-overdue wage increases for social service workers struggling to stay above the poverty line will all feel the effects of the budget ax. While he chops away, though, the governor has steadfastly refused to call for a progressive hike in the state income tax -- an increase that would affect only the most affluent New Yorkers. For the governor, "shared sacrifice" means that the state's low- and moderate-income families and communities must sacrifice while the fortunate few at the top, who benefited the most from the tax cuts of the last 15 years and from this decade's economic growth, will emerge from the budget largely unscathed.

In the 1990's a bunch of New York's plutocrats called themselves "Change New York," went around bullying politicians, and enabled George Pataki and his long reign of tax bracket squashing. Google "Change New York" and you'll find everything but them -- but the fearsome ghost of CNY must be haunting Albany yet. Their acolytes have not been silent.

Anti-government voices have mounted a steady drumbeat calling for steep budget cuts, ostensibly to rein in "out of control" state spending. The reality? State spending has increased to fund important new commitments such as providing medical care to people without health insurance and aiding urban school districts with high concentrations of children from poor families. The state government also dramatically expanded spending on property tax relief and acted to partially undo years of underinvestment in mass transit and public higher education.

Now to think these voices have the public good in mind would be quite naive. Check out The Shock Doctrine (see the Amazon widget in this blog's right column). So what should New York really do?

What should they do? In addition to its investments in infrastructure, unemployment insurance modernization and other measures, the massive economic recovery bill now making its way through Congress includes aid, called “state fiscal relief,” for the explicit purpose of helping states balance their budgets without putting too much additional drag on the economy. Since this legislation is likely to go to President Barack Obama for his signature in mid to late February, the sensible course would be for Paterson and the legislature to wait to see exactly how much “budget balancing” aid New York will receive under the final legislation. The chances are excellent to certain that the state will get several billion dollars it can use right away, since important parts of the “state fiscal relief” is retroactive to Oct. 31, 2008...

Some budget cuts may be unavoidable, but the state should also consider closing tax loopholes such as one that benefits non-resident hedge fund general partners working in New York State and taking other actions to generate budget savings. These could include ending the wasteful and failed Empire Zones program, increasing the use of state engineers rather than contracting out that work to expensive consultants, or using the state's sizable purchasing power to get better prices on prescription drugs.

Raising taxes on high earners would also be a step toward restoring fairness to New York's graduated income tax, which has become significantly less graduated over the years. Today, because of the state's increased reliance on regressive sales and property taxes, New York's middle- and lower-income households pay a higher share of their incomes in state and local taxes than the top 1 percent or the top 5 percent.

Sounds like a plan.