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Tax hikes for some Broad-based change a better path

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Gov. M. Andrew M. Cuomo and top state lawmakers are looking ahead to election year politics with a proposal for a second extension of higher tax rates on wealthy New Yorkers as part of budget negotiations that were still under way Wednesday.

Also called the millionaire’s tax, the higher rate first adopted in 2009 during Gov. David Paterson’s administration had been scheduled to expire at the end of 2011, but the so-called temporary tax hike on wealthy New Yorkers was extended at an 8.82 percent rate.

It cleared the way for the governor and legislators to raise tax revenue in the 2012-13 fiscal year without having to say they had hiked taxes during budget talks. Since the December 2011 deal also included middle-class tax breaks, it was cast as a tax cut. Now that same strategy is being used in 2013-14 budget discussions.

The current extension does not expire until the end of 2014, but state lawmakers are planning to keep the higher rate on millionaires in place to raise about $2 billion in revenue in 2015. Although it would not bring in any additional money in the fiscal year starting April 1, it is tied to about $700 million in proposed middle-class and business tax cuts beginning in 2014.

The tax relief proposal would send rebate checks of $350 to middle-class homeowners with at least one child and a household income of between $40,000 and $300,000. Those checks would also go out in 2014.

The higher tax on the wealthy is also intended to make more tolerable a proposed increase in the minimum wage over the next three years to $9 an hour, now at $7.25 an hour. Businesses oppose the hike as a job-killer.

Extenders allow lawmakers to claim they are not enacting any new taxes. The extra revenue anticipated in the 2014-15 fiscal year will allow the governor and lawmakers running for re-election to increase election-year spending on favorite programs without having to defend higher taxes to pay for them. E.J. McMahon, a senior fellow at the Manhattan Institute for Policy Research and its Empire Center for New York State Policy, said, “A pre-emptive extension of the tax will also give the Legislature more leeway to make promises now that will have bigger costs in three years.”

Singling out wealthy New Yorkers for a tax hike to fund cuts for others or to finance higher spending in a proposed $143 billion budget is the same approach the federal government has taken with recent tax hikes on individual income above $400,000 and $450,000 for couples.

The Partnership for New York City has said the state extension “at this time is the worse possible message New York State could send to our most important job creators and revenue generators.” It also noted that the combined federal and state rate on the city’s highest earners would be above 50 percent and could drive wealthy New Yorkers out of the state.

State lawmakers hope to have a final 2013-14 spending plan in place before leaving for Easter recess. That could require a message of necessity from Gov. Cuomo to waive the three-day waiting period on legislation that could close off public debate.

Opponents argue higher tax rates on wealth and job creators are risky in today’s economy with a state unemployment rate that edged up to 8.4 percent in January.

In December, Gov. Cuomo appointed a 10-member panel to study ways to make the tax code simpler and fairer and to help reduce New Yorker’s tax burden.

Rather than the temporary measures targeting a single group, Gov. Cuomo and lawmakers ought to give the panel a chance to complete its work on broad-based tax reform.

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