Weighing Paterson’s Tax-Hike Choice

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According to today's reports, Governor Paterson has been forced to do something that he most definitely does not like to do: make a decision. The governor must decide whether he’d rather alienate the state’s wealthiest residents, newspaper editorial boards, and fiscal conservatives by agreeing to an Obama-style tax increase for the well-heeled, or stick it to his own party members in the Legislature and the state’s largest labor unions. And his solution to heavily tax anyone making more than $500,000 a year is full of mixed signals.

It’s not a good time to be governor, especially one like Paterson with an approval rating at a historic low. And this is just another hard test of his leadership, not to mention his Albany gamesmanship. As with everything that Paterson does, nobody expects it to be pretty. There are two schools of thought on Paterson’s choices. The one shared by the Albany old-timers — the lawmakers and lobbyists who’ve been around long enough to know that governors don’t win budget battles but survive them — is that Paterson doesn’t have one. Bereft of political capital and allies, he can’t afford to alienate organized labor, the elementary unit of the Democratic base.

Advocates are trying to convince Paterson that he can tax without fear: “Barack Obama got elected president, winning red states all over the country, on a platform of raising taxes on people who make $250,000 or more,” says State Senator Eric Schneiderman, whose latest proposal kicks in at $500,000 a year. “The old political wisdom that voters will punish anyone who raises taxes is left over from the nineties.” Recent state polls showing that most people like the idea of taxing the rich would seem to bear that out.

The other view — one that naturally holds sway among the tax-hike critics but also by politicos less steeped in Albany’s insular culture — is that Paterson’s biggest concern should be overcoming his flighty reputation. “I would pick a fight. He’s got to show some backbone. People don’t like vacillation in their chief executives,” says one well-known Democratic operative. Still, if he resists, lawmakers will try to embarrass him by denying him an on-time budget, which would only reinforce the perception that he’s lost control.

By standing firm, even if that means blowing the budget deadline, Paterson can count on a slap on the back from the Daily News, the Post, and probably the Times. Business groups and the real-estate crowd would roar with approval. Still, the ultimate impact of such support is questionable. Says the longtime lobbyist: “I just watched Shelly Silver come through a campaign where three newspapers were out to kill him, and he won 68 percent.” Which means that, once again, Paterson’s move is anyone’s guess. The twist, turns, skids, and swerves of his first year in office don’t yield clues.

That it’s not even certain that Paterson will run next year only makes it harder to read his thinking. The most common view around the State Capitol is that the governor will consent to a tax hike — but one that sunsets after a few years and is perhaps half the size of Schneiderman’s $6 billion-a-year plan.

The Post’s Fred Dicker reported today that Paterson has privately agreed to a $4 billion-a-year tax on earners making more than $500,000, which would expire just before Paterson’s term ends. The governor, once again, is sending mixed messages. From what could be gleaned from recent chats with the tax opponents, he seems to be holding ground, albeit tenuously, to his conviction that raising taxes will only lead to reckless spending. “He basically said to me, ‘They don’t get it. They don’t know we’re in this profound economic crisis,’ ” says Kenneth Adams, who heads New York’s Business Council. “He didn’t tell me what he was going to do about it.”

Earlier: Paterson's Secret Tax Plan Leaked on a Particularly Bad Day