ALBANY — With the economy weakening and tax collections slowing, members of the State Assembly are discussing a plan that would raise income taxes on the wealthiest 3 to 4 percent of New Yorkers.
The proposal, which is being promoted heavily in the Legislature by the politically influential Working Families Party, calls for a “relatively modest” income tax increase coupled with property tax rebates as a way to increase revenue and stimulate the state’s economy.
Discussion of the plan is still in the early stages, but its basic elements already have the backing of Sheldon Silver, the Assembly speaker, and of Assembly Democrats who represent some of the wealthiest parts of the state.
“Not only do I think it’s a good idea, I think it’s really the only alternative at this point,” said Assemblyman Micah Z. Kellner, who represents part of the Upper East Side. “I believe people at higher income levels are prepared to take a slightly bigger hit on taxes if they know that money is going to be spent wisely.”
The plan is sure to meet opposition in the Republican-controlled State Senate. On Tuesday, the Senate majority leader, Joseph L. Bruno, reiterated his opposition to any new taxes. The emergence of the tax increase measure may also reinforce claims by Republicans that Democrats will raise taxes if they gain control of the Senate in the November elections.
And Gov. Eliot Spitzer has come out strongly against a tax increase as part of next year’s budget. But as the economic outlook clouds, the governor and the Legislature face limited options. On Tuesday, Mr. Spitzer’s budget director, Laura L. Anglin, repeated the administration’s objections to a tax rise, but she did not rule one out entirely.
“At this point, we would say that we put forward a budget that closes the gap and funds vital services and core priorities without having to raise taxes,” Ms. Anglin said. “Our concern is that we don’t want a lot of additional spending, which you tend to see often when the Legislature adds to the budget.”
But momentum for the proposal has been building among Assembly Democrats, who plan to include it in their version of the state budget for the next fiscal year, which begins on April 1. “There’s growing support for it,” said Dan Cantor, the executive director of the Working Families Party. “Can we get it all done? We’ll see. Part of it will depend on how we can persuade the governor, and that’s going to take some work.”
The Working Families Party, a left-leaning, labor-backed group that has gained prominence by providing critical grass-roots support in special legislative elections, officially notified Mr. Spitzer of its proposal on Tuesday. “If we are willing to be bold, we can take this opportunity to balance the budget fairly, and to start reducing taxes on working New Yorkers,” the letter said.
The party strongly backed Mr. Spitzer when he ran for governor, and has been instrumental in supporting the Democratic effort to recapture the State Senate.
The plan has two major elements. The first would raise income taxes on households with income above $250,000. While the proposal offers options for the size of the increase, under one option, the household would be taxed an extra percentage point on income it earns above $250,000. Currently that income is taxed at a rate of 6.85 percent.
The additional tax rate would gradually increase, to two percentage points on income over $500,000 and three points on income over $1 million.
Roughly half of the revenues would be used to pay for a property tax rebate for most homeowners in the state, and the rest would be used to pay for the state’s operations.
According to the Working Families Party projections, the state could raise $3 billion to $6.4 billion from the tax increases.
Budget experts have long debated the wisdom of raising taxes on the rich as a finance tool.
“You either have to cut spending or raise taxes,” said James Parrott, chief economist of the Fiscal Policy Institute, a left-leaning research group. “Neither of those is good. But the question is which is less bad for the economy.”
Mr. Parrott, who supports the income tax increase, noted that when the state last raised taxes on wealthier residents in 2003, in a temporary measure affecting those earning $150,000 or more, predictions that New York’s economy would suffer as wealthy people moved away proved wrong. “Hopefully, rational people in Albany will revisit what happened in 2003 and conclude that was not such a bad outcome.”
But E. J. McMahon, the director of the Empire Center for Public Policy, a division of the conservative-leaning Manhattan Institute, said it was misleading to compare the 2003 tax increase with this proposal, because that measure came at the same time that federal income taxes were reduced on upper-income people.
“There’s nothing like raising taxes when you’re entering a recession,” he said. “The timing couldn’t be worse.”
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