Assembly more pessimistic on revenues than Governor; “millionaire’s tax” getting consideration

Thursday, February 12th, 2009 at 12:47 pm by

Yesterday, Assembly Democrats released their economic and revenue forecasts.  They believe the Governor is too optimistic in his predictions.

The Assembly forecasts that state revenues for 2009-10 will be $1 billion less than in the Governor’s forecast, making the projected deficit for next year correspondingly greater – $14 billion, not $13 billion.

The Assembly forecast presents a collection of gloom-inducing facts and predictions about the severity of the national recession:

  • The January unemployment rate of 7.6 percent is the highest in 15 years.
  • 1.8 million jobs have been lost in the last three months alone.
  • The predicted 1.9 percent decline in Gross Domestic Product would be the first overall decline in economic growth since 1990-91 and would tie 1982 for the steepest since World War II.
  • Personal consumption spending is expected to decline by 1.6 percent for 2009, the first yearly decline since 1980.
  • Before the recession ends, employment is projected to decline by 3.8 percent, or 5.3 million jobs and consumer spending is expected to drop by 2l.7 percent. Both would be the worst declines of any recession since World War II.
  • New York State is expected to lose 268,000 jobs – the double the decline of the 2002 recession.
  • Wall Street’s share of total wages paid in the state is projected to decline from 24.4 percent in 2007, to 19.2 percent by 2010.

The Assembly’s forecast is significant, not just because it is lower than the Governor’s, but also because one of the ways that the Legislature has almost always paid for the items it adds the governors’ proposed budget is to predict the state would take in more money than the executive budget assumed.

The Legislature has the advantage of making its forecast a month or two after the Governor.  In years past, its optimism has almost always been more than borne out.  In 10 of the 12 years between 1996 and 2007, the state took in even more revenue than projected at the time the Legislature passed its budget.

With revenues now headed in the opposite direction, the Legislature needs to find new sources of revenue to pay for additions to School Aid and other items.  The two most often cited targets are the federal stimulus package and an increase in the state personal income tax on higher income New Yorkers.

Look for a future posting on latest developments in Washington.

Assembly Speaker Sheldon Silver has expressed support for such a tax increase and support seems to be widespread among his Democratic colleagues in the Assembly.   Earlier in the week,  collection of Democratic State Senators introduced a proposal estimated to raise $6.2 billion by raising the maximum state rate from 6.85 percent to 8.25 percent for households with annual incomes above $250,000, to 8.97 percent for households above $500,000 income, and to 10.3 percent on those with incomes above $1 million.

The leader of the Senate Democrats, Malcolm Smith, indicated he was not convinced that a tax increase is the right course.

Governor Paterson has left the door open to an income tax increase, but indicated he would want to see substantial cuts in spending first.

If an income tax increase is enacted, it  needs to be recognized that there would many claims on the revenue — not just School Aid.  Some of the revenue would go to avoid doing some of the regressive tax and fee increases in the Governor’s proposed budget.

So the income tax increase could be helpful, but it would close only a small share of the state’s huge projected deficit.

In 2003, the Legislature approved increases in state income and sales taxes over the vetoes of Governor Pataki.  If Governor Paterson were to veto an income tax increase, the prospects for an over-ride appear slim.

In 2003, the then Republican majority in the State Senate had the cooperation of Democratic Senators willing to over-ride vetoes by a Republican Governor.  Now in the minority, the Senate republicans have expressed opposition to a state income tax increase.

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