January 23, 2009
David Paterson’s Nearly 100 Tax and Fee Increase Proposals a Mixed Bag
NY Governor's Plan to Help Close Budget Gap Contains Good, Bad Fiscal Policy
A plan by Governor David Paterson (D-NY) to raise an additional $4 billion through nearly 100 increased taxes and fees to close his state's budget gap for fiscal year 2010 (which may be as large as $15 billion) contains proposals that move the Empire State closer to, and further away from, sound tax policy, as well as proposals that might be good or bad depending on surrounding circumstances.
In Tax Foundation Fiscal Fact No. 159, "New York Governor David Paterson's Tax and Fee Proposals a Mixed Bag," Tax Foundation Staff Economist Josh Barro notes that many of the improvements in the Governor's plan involve broadening the sales tax base. This includes elimination of the sales tax exemption for clothing, expansion of the sales tax to various services, and the elimination of the tax cap on gasoline.
"Exclusion of consumer goods and services increases the rate that must be charged on all other purchases to raise sufficient tax revenue," says Barro. "When certain goods are exempted from the base, sales tax revenues become more volatile, increasing the severity of state budget crises."
Many of the bad proposals also have to do with sales, including a new sales tax holiday on clothing that would make the tax code more complicated and would not foster more economic activity. Paterson also includes an 18% tax on soft drinks containing sugar, a so-called "obesity tax."
"Not all soda drinkers are obese and not all obesity is caused by soda. If the tax is imposed on soda, why not ice cream?" Barro asks.
A few of the other tax changes might or might not be good ideas. Higher fees for government services (from motor vehicle registrations to boiler inspections) as well as higher fines to various kinds of malfeasances (like traffic and food safety violations) also depend on specific circumstances.
"A fee increase is appropriate if it is needed to keep up with the cost of the service provided for the fee, but not if it is diverted to provide general revenue," Barro argues.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
Fiscal Fact No. 159 can be found at http://www.taxfoundation.org/publications/show/24230.html.
###
To schedule an interview, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.
