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New York's Budget Battle: A Case Study for Obama?

Facing a deepening fiscal crisis, New York governor David Paterson has proposed deep budget cuts. Dems, watch and learn.

| Tue Nov. 18, 2008 4:00 AM EST

In New York City, the proposed state cuts come on top of city budget cuts. Before this recession began, 28 percent of New York City's children already lived below the federal poverty level, as compared with about 19 percent of the state's children and 18 percent of the nation's. Now, cuts by government and nonprofits are hurting the poor in the areas of food security, shelter, eviction prevention, medical care, child care, and heating assistance, according to Jennifer March-Joly, executive director of Citizens' Committee for Children of New York. The group is a member of the new One New York: Fighting for Fairness, a coalition of some 90 nonprofit groups that are urging state officials "to call on all New Yorkers—not just those that depend on government services—to sacrifice" during the crisis.

The cuts will also affect the increasing number of residents who are slipping out of the middle class. According to James Parrott of New York's Fiscal Policy Institute, in September, the state labor department upped its estimates of job loss in New York City due to Wall Street to 40,000 with 120,000 losses overall. "Jobs are declining in businesses supplying Wall Street, such as law firms, temp agencies, caterers and car services, as well as in retail," Parrott wrote recently. As of the summer of 2008, the number of New York City workers filing for unemployment insurance had jumped by 25 percent over the prior year, while the inflation-adjusted median hourly wage in the city had fallen by 4 percent.

Yet as their city suffers disproportionately from a national fiscal crisis, rank-and-file New Yorkers will likely get little relief from Washington or Albany. In fact, the city has historically paid about 20 percent more in federal taxes and almost twice as much in state taxes than it gets back in services from those governments. The federal government couldn't even manage to give the city a fair share of homeland security funds after 9/11. As for the state, New York is one of only two states that require cities to pick up 25 percent of the costs of Medicaid for their residents—a measure passed some 40 years ago and meant specifically to pass the burden to New York City. The state has also long fought off efforts by the Campaign for Fiscal Equity to get New York City schoolchildren their fair share of state funding. After more than 10 years of lawsuits and appeals, CFE finally won its case in 2006—but Paterson's cuts will now undermine any gains.

Paterson, a former state senator from Harlem with a solidly liberal record, sounded like an old-school Republican on a recent trip to Washington, insisting that budget cuts and business development, not new taxes, were the only way to go. He even quoted libertarian icon Ayn Rand—whose other famous acolyte, of course, is Alan Greenspan.

By taking this position, Paterson is ignoring the advice of Joseph E. Stiglitz, the Columbia University professor and Nobel Prize-winning economist. Stiglitz is a member of the Governor's Board of Economic Advisors, which Paterson set up in August but now seems to be using as little more than window dressing for his draconian plans. In the current crisis, Stiglitz has strongly supported a millionaire's tax. And during the 2001 recession, Stiglitz and Peter Orszag (now the director of the Congressional Budget Office) wrote that in times of economic downturn, marginal tax increases on higher-income families are "the least damaging mechanism for closing state fiscal deficits in the short run," while "reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy."

The situation in New York also foreshadows what is sure to be a central conflict on the national level once Barack Obama takes office and the newly elected Congress convenes. Now that they have the power to do so, will Democrats actually be willing to raise taxes on the rich? How soon and by how much? Will they really undertake deficit spending for stimulus packages that directly benefit the poor and middle class, rather than shore up Wall Street? Or will they follow the path that is now walked by Paterson and take away more from those who have the least to spare?

Photo by flickr user Barack Obama used under a Creative Commons license.

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