N.Y., Calif. governors press tax hike on rich

In the space of a few days this week, the Democratic governors of California and New York have backed a bet that voters will embrace the idea of raising taxes on the rich to solve their states’ budget woes.

The New York Senate voted 55-0 Wednesday to approve Gov. Andrew Cuomo’s proposal to raise taxes on the state’s highest earners. Meeting in special session, the state Assembly was also expected to sign off on the plan, which would raise an estimated $2 billion by increasing the income tax on New York single-filers who earn more than $1 million annually.

Two days earlier, California Gov. Jerry Brown unveiled a proposed ballot measure that would bring in $7 billion by increasing the income tax rate on the state’s highest earners and raising the state sales tax.

Mr. Cuomo billed the deal as a tax reduction, noting that it includes a small tax reduction for the middle class and manufacturers. The top earners also would receive a small tax cut under the plan because of the Dec. 31 expiration of the so-called “millionaire’s tax,” a surcharge that pushed the state’s upper rate to 8.97 percent.

The legislative package eliminates the state’s relatively flat income-tax table and replaces it with a graduated rate that starts at 6.85 percent for couples earning between $40,000 and $150,000, and tops out at 8.82 percent for joint filers earning $2 million or more.

“New York has left the middle class with an undue burden, which also hinders economic recovery,” Mr. Cuomo said in a videotaped message. “Fairness dictates that the more you make, the more you pay, and the higher your income, the higher your rate.”

The deal received bipartisan support in the state Senate, but Assembly Republicans blasted the package as a temporary fix for the state’s looming budget gap. According to projections, New York faces a $350 million budget shortfall this year and a $3.5 billion deficit in fiscal year 2013, which starts April 1.

“[T]he bottom line is that taxes are being raised in New York State and we are still not dealing with our state’s serious spending problem,” state Assembly Minority Leader Brian Kolb said in a statement. “Tax hikes have never been the answer for creating more private sector jobs and long-term prosperity for New Yorkers. That still holds true today.”

Mr. Cuomo was elected a year ago on a platform that promised a tax “freeze.” Critics pointed out that the governor, as recently as October, continued to insist that he would hold the line on higher taxes.

“You are kidding yourself if you think you can be one of the highest taxed states in the nation, have a reputation for being anti-business and have a rosy economic future,” Mr. Cuomo said in October.

New York was one of four states - along with California, Missouri and Washington - to report budget deficits in the middle of this fiscal year. Mr. Cuomo had been under intense pressure to raise taxes from liberal Democrats as well as the Occupy Wall Street movement, which caricatured him as “Gov. 1 Percent.”

In California, Mr. Brown was the first to blink on tax hikes when he announced Monday that he would ask voters to raise the state income tax on those earning more than $500,000. The measure also asks for a sales-tax hike of one-half cent. Both increases would expire in five years.

Mr. Brown was unable to push a tax increase through the Legislature thanks to Republicans, who refused to give him the mandatory two-thirds legislative approval required to raise taxes. Instead, the governor will go the signature-gathering route in order to place the tax-hike measure on the November 2012 ballot.

Going to the voters is no sure thing: Californians have rejected the past seven tax-increase initiatives, and the state’s economic climate and housing market remain mired in the doldrums. To make matters worse for Mr. Brown, four more proposed initiatives to raise taxes are gathering signatures for the November 2012 ballot, a scenario bound to create confusion for voters.

The national trend isn’t encouraging: In November, Colorado voters overwhelmingly rejected Proposition 103, an initiative aimed at raising income and sales taxes in order to fund education, by a margin of 63 percent to 37 percent. Mr. Brown is billing his proposal as a plan to finance education and public safety, which polls show draw more public support than other budget items.

Patrick Gleason, director of state affairs for Americans for Tax Reform, said New York and California “have a spending problem, not a revenue problem.” California has spent $230 billion more and New York has spent $130 billion more than they would have if they had kept spending in line with population growth and inflation, he said.

“With these proposals, Cuomo and Brown are not so subtly encouraging employers to kindly leave,” Mr. Gleason said.

The Wall Street Journal, in an editorial Wednesday, suggested that the two Democratic governors could pay a political price for their “left turn” on higher taxes.

“So two states are now taking one more whack at the people who create wealth, in order to redistribute more of it,” the paper wrote. “For how that story ends, look to Europe.”