Last week, the New York State Legislature adopted Governor Andrew Cuomo’s (D) $132.5 billion state budget. The document cut spending 1% across the board and fulfilled the governor’s campaign promise of not raising taxes. It won broad support from lawmakers on both sides of the aisle. Shortly after this legislative victory, Mr. Cuomo declared: “Tonight the legislature not only passed an on-time budget, but a historic and transformational budget.”
It also elevated Gov. Cuomo into a national figure. As states across the country struggle to tackle budget deficits, the New York Democrat addressed his $10 billion short-fall by cutting Medicaid ($2.85 billion) and education ($1.27 billion), while closing prisons ($72 million) and consolidating state agencies (the insurance and banking departments will now form the Department of Financial Services). This budget also made Cuomo a different kind of Democrat; unlike new governors Pat Quinn (IL) and Jerry Brown (CA), Cuomo balanced his budget without hiking taxes on the rich.
Liberal critics blasted Cuomo for not doing so. A New York Times editorial called this decision “inhumane and fiscally backward.” They want the governor to extend the so-called “millionaires’ tax,” which expires December 31. The governor has repeatedly refused to do so. Advocates of the millionaires’ tax, officially known as the personal income tax (PSI) surcharge, say it’s a necessary counter to crippling austerity measures that will disproportionally hurt the poor. PSI applies to single individuals earning over $200,000 or married couples earning $300,000 or more.
The non-partisan, independent Fiscal Policy Institute has come out in favor of extending PSI. They claim the tax would add $5 billion in revenue for fiscal year 2012-2013, assert the surcharge would not be “onerous” to wealthy New Yorkers and maintain it is “off-set” by the extension of the Bush tax rates last December. Everyone must sacrifice during tough economic times and, as FPI argue: the rich must pay their fair share.
But the rich pay a considerable amount of taxes. Top earners in New York (those earning more than $500,000) pay 8.97% in state personal income taxes. Middle Class New Yorkers (those earning between $200-499,999) pay 7.85% in personal income taxes. The poor and lower middle classes ($20,000-199,999) pony up 6.85%.
The Tax Foundation, a right-leaning organization, reports that New Yorkers bear the 2nd highest state and local tax burden in the country, behind only neighboring New Jersey. New Yorkers pay $6,157 per capita in these fees.
Governor Cuomo believes New Yorkers are taxed enough already. He is aware of what Ronald Reagan called, people voting with their feet. The recent U.S. Census showed New York had a population increase of only 401,645 over the last decade and lost two congressional seats.
Is it any coincidence that states with no income taxes (Florida, Texas, and Nevada) experienced the greatest population gains over that period? Nevada was the fastest growing state (population up 35%), Texas had the most new residents (4.3 million) and Florida gained 2.8 million in that period. Nevada picked up a congressional district (it has 6). The Sunshine State now has as many congressional districts (27) as New York does. The Lone Star State picked up four additional congressional seats (it now has 34).
Many liberals don’t see a correlation between population loss and high taxes. Faced with what he called “the greatest crisis in modern times,” new Illinois governor Pat Quinn wants to hike taxes 50% to deal with his state’s $11.6 billion deficit. His plan will increase income tax rates from 3% to 4.5%. Illinois’ population rose only 425,338 over the last decade and the state lost a congressional seat due to new census data.
Andrew Cuomo has seen the correlation and has offered a new vision. He realizes that you can’t continue to tax the rich to deal with budget short falls. New York faces a spending problem, not a revenue problem.
Republican governors agree. Many Midwest Republicans have tried to solve their budget short-falls by limiting collective bargaining right for state workers. Mitch Daniels did this by executive order shortly after assuming office in 2005. This February, Scott Walker and Wisconsin Republicans passed a bill which eliminated many collective bargaining rights for state workers and forced them to pay a higher percentage of their salaries for health benefits. John Kasich of Ohio followed Walker’s lead and pursued similar legislation.
Liberals went nuts. Protestors stormed the Madison capitol building and stayed for several days. Democratic state legislators fled the state for Illinois. State police were sent around to lawmakers’ homes to search for, and bring back, missing Democrats. The whole thing turned into a circus. AFL-CIO chairman Richard Trumka came to the capitol and said workers across the nation stood with Wisconsin teachers and state legislators. Jesse Jackson came to Madison as well, and argued that collective bargaining was sacrosanct and the continuation of Martin Luther King Jr.’s dream.
Of course, Democratic governors have budget problems too. In fact, the deficits in Illinois and New York dwarf the $3.6 billion dollar deficit Scott Walker faced in Madison. That’s why Andrew Cuomo’s decision to not-raise taxes is important. Liberal interest groups would naturally protest Republican austerity measures. But Cuomo is a Democrat and can become a national model for liberals to follow.
Only Democrats can lead the country out of its fiscal mess. Liberal interest groups will (and already have) blast austerity measures proposed by conservative governors. But Democrats have the political capital and the cache to strike a deal and manage a fiscal recovery.
One historical parallel immediately jumps to mind. In 1972, President Richard Nixon went to Communist China and met with its leader Mao Zedong. People concluded that only Nixon could go to China, because he played a leading role in the Alger Hiss Case. Nixon’s anti-communist credentials gave him the necessary cover to reach out towards Beijing, and allowed Nixon to re-shape the geo-political debate.
Andrew Cuomo has a similar opportunity in this fiscal debate. If he holds the line on spending and resists the calls to raise taxes, no one can accuse him of being another tax-and-spend liberal. This move will instantly make Cuomo presidential material: not bad for a chief-executive who’s been on the job less than 100 days.