Tuesday, February 10, 2009

A Pre-1974 Mentality

The Working Families Party, and its political allies, is out to bankrupt New York State, drive small business and the middle class out, and reduce all employment growth to a public sector that simply won't be able to maintain it as the state's private sector shrinks into the ether. As the NY Times reports: "A plan to raise income taxes on wealthy New Yorkers is gaining momentum in the State Legislature as lawmakers continue to grapple with the state’s gaping budget deficit. A group of Senate Democrats plans to introduce a bill on Tuesday that would impose an income tax of 10.3 percent on the highest-earning New Yorkers, a rise of 3.45 percentage points, and increase taxes on all households that earn more than $250,000 a year."

This proposal-one that we predicted would soon eclipse the so-called millionaire threshold-comes at a time when the middle class is fleeing and small business job creation is threatened by the high cost of doing business in the state; just as the Center for an Urban Future has cogently underscored.

Here's Fred Siegel's cogent analysis of the CUF report: "The fledgling tech firms left for the same reason middle-class New Yorkers are leaving: The costs of living and working in New York were far too high. The combined city and state tax of 17.6 percent on corporate profits is the nation's highest, while start-ups are hit by the city's highest-in-America's 10.5 percent income tax, plus Gotham's nearly unique 4 percent unincorporated-business tax."

But it gets worse: " It is the high cost of maintaining New York's vast public payroll (and benefits, which since 2000 grew twice as fast as those in the private sector) that makes the city so expensive. In other words, the public-sector middle class is increasingly chasing its own tail - even as the costs of government drive away private-sector jobs. The costs of paying for public-sector compensation come back to haunt the city in the form of higher sales, property and income taxes - which were unaffordable even before the crash."

The same situation holds true for the state-and the proposed personal income tax hike will only make a bad situation that much worse; something that Bill Hammond points out this morning in the NY Daily News. Hammond demonstrates that it makes little sense for the state to absorb the federal stimulus dollars in order to avoid cutting the bloat that is a direct drag on economic growth: "The likelihood that Albany will soon be deluged with federal stimulus money has big-spending interest groups licking their chops.The House and Senate haven't even agreed on the final package yet, and already the teachers union and the health care industry are dickering over how to divvy up the billions."

These are the same interests behind the "Fair Share Tax Reform" bill that is circualting in the state senate. So not only do these folks want to abscond with the federal stimulus money; they also want to raise job killing taxes at the same time: a double whammy for the private sector at a time when most of the so-called wealthy (two family wage earners making $250,000/year are not either uncommon or wealthy in New York) are trying to figure out how to recoup their 30-40 percent losses in their retirement funds.

As Hammond tells us: "Gov. Paterson should tell all of them to get in line - behind the taxpayers.
New Yorkers already pay the highest state and local taxes in the country, thanks to runaway spending on schools and health care. That tax burden would get even heavier under Paterson's doom-and-gloom budget, which included $4 billion in new or higher levies on everything from movie tickets and sugary soda to health insurance and utility bills."

This is the challenge facing Governor Paterson: "Now that Washington is coming through with emergency aid, however, the picture changes completely. State government is expected to receive $17 billion or more over the next two years, some of which is specifically earmarked for closing deficits.That's not quite enough to make next year's $13 billion deficit go away completely. But it's more than enough to wipe out Paterson's proposed tax hikes.To his credit, the governor has pledged that minimizing the pain for taxpayers will be his first priority."

This doesn't stop the WFP and friends-folks who have yet to present one concept of how the public sector is going to be made more cost effective in these tough times; talk about killing the goose that laid the golden egg: "Our state is like an overweight guy who's under doctor's orders to slim down. Just when it looked like the collapsed economy would force a long-overdue weight-loss regimen, Washington pulls up with a truckload of cannoli. For the long-term health of the state, Albany lawmakers must resist the temptation to go on another spending binge.They must remember that New York's spending was already too high to be affordable before the economy crashed. Now, Wall Street is a shadow of its former go-go self, and likely to stay that way for years. New York "needs to fit itself into a smaller envelope," says Elizabeth Lynam of the Citizens Budget Commission."

So we find ourselves right back in a pre-1974 mentality; with public sector, free enterprise hostile forces, looking to maintain the former while sticking a dagger into the latter. The WFP's Bill Cantor gives the Times the following revealing quote: “No one likes to pay taxes, but this is the group that is able to bear a little bit more of the burden,” said Dan Cantor, executive director of the Working Families Party, which has been aggressively lobbying for the tax increase. “It’s common sense and its morally just.”

"Morally just!" Who's he kidding? Cantor's just shilling for those whose livelihoods depend on private sector largess-and is doing so with little or no historical memory. After all, it was the belief that New York could continually operate a quasi-socialist government in the midst of a capitalist economy that lead to the city's bankruptcy in the 1970s. Now, however, history's repeating itself with the new formulation of the Gerald Ford line: "Cantor to New York-Drop Dead!"