While New York State's income tax cuts do not pass muster on fairness grounds, they also raise questions about the efficacy of tax cutting as an economic development strategy. New York's economic growth over the last several years has been concentrated in the New York City metropolitan area and is more related to the boom on Wall Street than to state tax policy. If it were not for the Wall Street boom, New York's rate of job growth would be even further below the national average than it has been. We must take off our blinders and acknowledge that because of federal deductibility and other leakages, the tax cuts are very likely taking more money out of the state's economy than they are putting back into it. Because of their size, the tax cuts are also forcing significant reductions in services such as health care, education and transit which diminish the state's economic viability in the long run in addition to their immediate effects.
Some observers anticipate an even greater surplus.
This year's spending cuts are necessary to finance this year's new tax cuts, to make a contribution to the financing of next year's new tax cuts, and to somehow atone for last year's budget growing at greater than the rate of inflation. Yes, New York State can achieve structural balance without counterproductive service reductions. This recognition should open the door to a more fundamental retargeting of STAR that ensures that it provides relief to those who need it without giving relief to those who do not. A greatly expanded circuit breaker can provide more relief to those who truly need it at half or less of the overall cost of the current STAR program. Realistic reassessments must also be made of both existing and proposed tax preferences for business and or the recent and proposed personal income tax cuts.