Golden geese

5 August 2010 By Martin Hutchinson

With Wall Street bracing its tax base, New York is further from default than other states. But its spending has increased three times faster than GDP over the past decade. If the state can’t start cutting back and keeps trying to soak the rich, its golden geese may start to fly.

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The New York state senate on August 3 passed a $136.5 billion state budget for the fiscal year ending March 2011, 125 days after its due date, partly closing a $9.2 billion fiscal gap. The budget's spending is 2.5 percent above the previous year.

The state budget includes $4 billion of tax increases, including the elimination of a sales tax exemption on clothing and footwear purchases under $110 and the halving of charitable deductions for incomes over $10 million. The legislature dropped a proposal to make hedge fund "carried" interest subject to state income tax. In addition, the state legislature passed a $1 billion contingency plan of payments cuts to replace uncertain federal aid for Medicare payments.

New York's state spending increased from $50.5 billion in the year ended March 2000 to $126.7 billion in the year ended March 2010, a 151 percent increase compared with a 49 percent increase in nominal U.S. GDP. The annual 9.6 percent increase in state spending compares with 2.4 percent inflation in the period and 0.3 percent annual increase in New York's population.

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