My op-ed in today’s New York Post is about the fiscal folly (economics aside) of trying to balance the state budget with higher taxes on a relatively small number of affluent New Yorkers whose incomes and portfolios have dropped sharply in the recession–and who face much bigger federal tax hikes within the next two years. Turns out the revenue estimate was too high, which is a major reason why Albany’s still-growing budget now has a $2.1 billion deficit.
Here’s how the problem is described in the “Revenue Risks” section (pp 42-43) of the First Quarterly Update of Governor Paterson’s Financial Plan:
The estimated values for 2009-10 Enacted Budget law changes, especially the temporary income tax rate increase on high income taxpayers, represent a substantial portion of estimated receipts. In the current economic environment, [the] impact on the small number of high income taxpayers makes these estimates highly uncertain. In particular, taxpayer behavior connected with the tax rate increase will likely continue to affect the timing of related collections.
They can’t say they weren’t warned.
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