Paterson: Cigarette tax hike may offset budget cuts

ALBANY - Gov. David A. Paterson suggested Monday that the cigarette tax might be increased to help offset reductions in health care spending.

He vowed not to propose such a hike but said lawmakers would likely be interested after he unveils his 2010-11 budget next Tuesday. He said there would be cuts to every area of state government, including school aid and Medicaid.

The cigarette tax was last raised in 2008 from $1.50 per pack to $2.75 - among the highest in the nation.

"When the budget comes out next week and people see the depth of the cuts . . . if the legislature wanted to consider another alternative, I would suggest the only taxes that would be on the table would be dedicated taxes," Paterson told reporters. "So, the cigarette tax would be dedicated to health care."

He added, "this is not something we are mulling over . . . [but] we are trying to make sure everyone understands that the budget deficit as we know it now could become more severe if revenues drop."

Paterson was alluding to this year's budget, which includes a three-year surcharge on the personal income taxes paid by the wealthy. He initially opposed the surcharge but acquiesced when the deficit ballooned.

Paterson pegged next year's red ink at $7.5 billion, an increase of $700 million from October. The 2010-11 proposed budget would increase spending by less than 2 percent, or below the cap that Paterson has been pushing for more than a year.

Were the cap to be adopted, he predicted Monday, it would generate a surplus of more than $1 billion in 2011-12. That money then would be used to lower school property taxes through a tax credit on income taxes paid by households earning $300,000 or less.

But some fiscal experts doubted property-tax relief would be forthcoming.

E.J. McMahon, of the conservative Empire Center for New York State Policy, said the surplus would be needed to close a projected $14-billion deficit in 2011-12.

"Applause should be held," McMahon said, "until we know whether [Paterson] intends to achieve structural balance solely through recurring savings and spending reductions, and not through another round of increases in state taxes and fees."

Senate Minority Leader Dean Skelos (R-Rockville Centre) welcomed the renewed call for a spending cap, which twice passed the upper chamber when Republicans were in charge. He noted the Democratic majorities in the Senate and Assembly have yet to embrace the cap.