Mr. Republican

National Review, April 7, 1997 by Matthew Carolan, Raymond J. Keating

In exchange for the pork, Pataki got workers'-compensation reform, which has been praised as a major accom- plishment. However, with New York's workers' comp costing an estimated 57 per cent above the national average (according to the Public Policy Institute), the governor's projected cut of 25 per cent leaves a lot of ground to be made up.

Pataki's proposed 1997 - 98 budget, a whopping $66.1 billion, calls for a spending hike of a little more than 2 per cent. The latest budget also completes the final stage of the governor's vaunted personal-income-tax cut. Assuming Pataki's budget survives in the Assembly, the top individual income-tax rate will drop to 6.85 per cent. That is just a hair below the 7 per cent rate which Cuomo signed into law and then reneged on.

Pataki's supporters like to say his income-tax cut is "the biggest tax cut in the nation's history." However, the size of New York's economy naturally makes this tax cut large in total dollar terms. The more legitimate measure of a tax cut is how much tax rates are reduced. By this measure, Pataki's tax cut is not large at all. Furthermore, New York's top income-tax rate will still exceed the average for the other 49 states by 25 per cent. What's more, the state's corporate tax rate (9 per cent) ranks among the nation's highest. And New York also levies a destructive capital-gains tax, which even after the Pataki cut will top the other 49 states' average by 38 per cent.

Pataki is also very quietly proposing (no press releases here) to stay the elimination of a 17 per cent Metropolitan Transit Authority surcharge on business taxes levied in the New York City area due to expire at the end of 1997. This amounts to a four-year business-tax hike of over $2 billion. The governor also has agreed to an extension of a 12.5 per cent surcharge on New York City's personal income tax, as requested by his fellow Republican, Mayor Rudolph Giuliani.

So, no additional income-tax relief is in sight. Instead, the governor has proposed going after the state's hated local property taxes, which are linked to some of the most costly, inefficient public schools in the nation. Pataki wants to phase in over four years a cut in local school taxes amounting to $1.7 billion. But his plan is simply to make up for those lost revenues with state dollars -- not to mention an additional $1.7 billion increase in state aid.

What's more, each school district will be allowed to boost school taxes by up to 4 per cent a year, and more if enrollment rises, or if new building in the district boosts property-tax revenues, or if voters give two-thirds approval. So, without deep spending reductions at the state level, this property-tax "cut" is really a tax shift -- and a potential tax increase. (As of this writing, Pataki says he will attempt to wrest from the hands of the legislature a newly discovered state surplus, variously estimated at anywhere between $650 million and $2 billion, to speed implementation of his property-tax cut. The showdown will come during the annual budget battle in Albany.)