Monday, December 15, 2008

Nanny State Paterson's Latest Tax Grab

The tax on non-diet carbonated beverages might be the lede, but it isn't the real news. That tax proposal is pretty well assured to be dead on arrival, even though it shows that Gov. David Paterson (D) isn't above being a nanny stater in the mold of New York City Mayor Mike Bloomberg (I).

You aren't going to raise $4 billion in tax revenues from taxing soda. You're going to raise $4 billion (or at least attempt to raise $4 billion) by taxing more of everything that moves. Paterson believes that he could get $404 million by taxing non-diet soda.
The plan will come with a host of revenue raisers — increased taxes on hospitals and insurance policies, for instance — and at least one new assessment, a so-called obesity tax on non-diet soda to raise $404 million. The governor also is contemplating requiring new license plates to raise cash, reviving sales tax on clothing purchases, removing the tax cap on gasoline and threatening to require Indian retailers to collect taxes on sales to non-Indians by signing into law a bill passed earlier this year by the Legislature.

Paterson will unveil the spending plan, aimed at closing a $12.5 billion deficit for next year, on Tuesday. The total size of the Paterson budget is unknown.

There is no word on Paterson's plans for the state work force, although he has said he will adhere to a strict hiring freeze while looking to consolidate some components of government.

The cuts will be across the board and will build upon a deficit reduction plan Paterson proposed in November as he attempted to close the $1.5 billion shortfall in the $120 billion budget negotiated for this year. The plan was inherited from the executive budget introduced last January by Gov. Eliot Spitzer.

The health industry will be particularly upset, although Paterson's cuts will raise blood pressure throughout. He will call for about $3.53 billion in health care cuts, not including federal share of matching Medicaid dollars, which could be another $2 billion in cuts.
The health industry is one of the largest employment sectors in the state and the health industry unions are extremely powerful; they will resist any and all cuts.

They've been the force behind higher state spending year over year. They will not take any level of cuts, no matter how necessary.

The State's Budget Office has some figures that are quite enlightening. Gov. Paterson is talking about budget cuts, but take a good look at the budget figures.

They are still an increase over the prior year budget. He's still calling for an increase in state spending, just at a lower rate than previously hoped for.

The 2006-2007 fiscal year budget $73,489,000. That grew to $77,909,000 in FY 2007-2008 and the projected FY 2008-2009 budget is $83,830,000. Governor Paterson's revised budget? It's $81,825,000. That's an increase of $3.9 billion dollars over the FY 2007-2008 budget. How exactly is that an austerity budget? Every year the state's spending has outstripped the rate of inflation.

It's a problem that goes back beyond just the past two fiscal years. It's a problem with state spending going back decades, but which accelerated under the so-called Republican leadership of Gov. George Pataki and Democrat Eliot Spitzer.

The state has been spending more than it could afford for years on end, and no one in Albany wanted to stop spending. Everyone had a hand in the mess, and everyone leaned on Wall Street to bring in the revenues that the state relies upon for its budgets. With Wall Street on the rocks, the revenues simply aren't there.

The taxes and cuts that Gov. Paterson are talking about will be compounded with Bloomberg's tax and spending program for New York City, which will further drive down the competitiveness of the city and send people fleeing towards more favorable tax climates.

If Governor Paterson were truly serious about controlling the state's budget, here's a simply response. Demand that the state approve the budget as last enacted for fiscal year 2006-2007. It would be a savings of nearly $10 billion over what the projected budget asked for and would be more than a $7 billion savings over Gov. Paterson's latest proposal.

Everything else that the Governor is proposing is nothing more than window dressing. The tax on carbonated beverages is window dressing. The real story is that he's not doing nearly enough to reduce spending. Besides, would taxing carbonated beverages really reduce obesity? I doubt it. It's just another tax policy hoping to change social policy and the eating habits of millions of people.

Meanwhile, Paterson is also proposing ending the sales tax exemption on clothing sales under $115. That would result in still more sales lost to New Jersey, where such transactions are exempt. It would mean that New York businesses lose still more sales to New Jersey and with that, lower revenues for their corporate taxes, which in turn means fewer jobs created or sustained, reducing the tax base further.

Don Surber points out that New York is pretty much in the middle of the pack when it comes to obesity in the nation. The full table of obesity rates in the nation is here. Don notes that West Virginia has had a tax on carbonated beverages and it's done nothing to alleviate obesity there, but now that the idea to tax items to combat obesity is on the table, watch for other states to rush to claim the idea as their own and increase those taxes ever higher - all in the mad rush to claim that it's good for us.

It's just another excuse to raise taxes, and a bad one at that.

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