Gov. Paterson Calls For Raising NYC Payroll Taxes; Decreasing Suburban Payroll Tax

Gov. Paterson is calling for changes to the recently amended payroll taxes to increase the tax burden on NYC businesses, while cutting the tax burden on the MTA counties (those located outside the five boroughs of New York City). This is yet another stupendously bad idea - the first being the payroll tax hike last year that ended up taking in hundreds of millions less than anticipated.

In his latest revised state budget -- which had predicted a $400 million drop in projected revenues from the tax -- Paterson has proposed hiking the tax on city businesses from .34 percent for every $100 of payroll to .54 percent.

Meanwhile, the other seven counties served by the MTA's transportation network would catch a hefty break under the plan.

Those counties -- Suffolk, Nassau, Putnam, Westchester, Orange, Dutchess and Rockland -- would see their rate slashed in half.

Elected officials and shop owners in those counties have railed against the tax -- which was instituted last year -- saying they pay the same rate as city businesses while getting only a fraction of the transit service that Big Apple residents get.

But a furious Mayor Bloomberg vowed to fight Paterson's "wrongheaded proposal.

"The idea that the State can spare the suburbs while sacking the City is terrible economics, grossly unfair and contrary to every principle of good regional development," the mayor seethed in a statement.

The MTA said the change would make up $230 million of the MTA's $400 million budget gap for 2010, which was caused by the payroll tax not bringing in the amount officials initially expected.

If Albany approves the change, it would "lessen the need for additional cuts on top of those passed in December," said MTA spokesman Jeremy Soffin.

It was that revenue shortfall that led to the MTA budget being in worse shape; the MTA had budgeted based on the all-too-rosy revenue projections.

Now, Mayor Bloomberg is slamming Paterson for calling for the tax hike on New York City businesses while cutting the taxes on the suburban businesses, which get a fraction of the MTA service that those in the City get.

Here's the thing; New York City is still in the throes of a recession and there's little sign that the recession is ending here. Why should anyone expect the revenue projections to be more correct this time around? It's yet another problem with trying to tie MTA funding to specific tax revenue streams, since the vagaries of annual tax revenues can lead to shortfalls one year and surpluses the next, when the MTA needs a consistent revenue stream that allows it to operate consistently and with open books.