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Politics

Governor Paterson wants to tax iPod downloads?

ALBANY – Gov. Paterson’s proposed $121 billion budget hits New Yorkers in their iPods – and nickels-and-dimes them in lots of other places, too.

Trying to close a $15.4 billion budget gap, Paterson called for 88 new fees and a host of other taxes, including an “iPod tax” that taxes the sale of downloaded music and other “digitally delivered entertainment services.”

“We’re going to have to take some extreme measures,” Paterson said Tuesday after unveiling the slash-and-burn budget.

The proposal, which needs legislative approval, did not include broad-based income tax increases, but relied on smaller ones to raise $4.1 billion from cash-strapped New Yorkers.

Movie tickets, taxi rides, soda, beer, wine, cigars and massages would be taxed under Paterson’s proposal. It also extends sales taxes to cable and satellite TV services and removes the tax exemption for clothes costing less than $110.

iPod downloads? Cable television? Beer? What is a boy to do?

But seriously, folks. Paterson — like most of his gubernatorial brethren around the country — is in an unenviable position. Most states are facing budget shortfalls, and most of them are required to balance their budgets — which means that essential services must be cut, or taxes must be raised. There are no two ways about it.

I’d tend to agree with Patrick Ruffini, however, that this is not the most politically savvy way to do it. One can imagine the campaign commercials now:

Governor Paterson signed into law over 88 separate tax increases on everyday goods like gasoline, clothing, beer, college tuition, soft drinks — even music downloads! Paterson says ‘yes’ to tax increases for working families. It’s time for New Yorkers to tell him ‘no’.

Probably better just to hold your nose and raise income taxes.

I would also argue that it is not very economically savvy to raise sales taxes. In comparison to income taxes, sales taxes tend to encourage savings and capital formation in lieu of consumer spending. But for the time being, the consumption side is more of a problem. Consumers simply aren’t spending any money, in part because they’re scared, and in part because they’re making rational adjustments to the fact that they have less job security, less equity in their homes, and less wealth embedded in their retirement portfolios. By contrast, capital is cheap right now, and there is plenty of it out there — it isn’t going anywhere because businesses don’t think they can invest it profitably.* This is why the fed funds rate is 0.000001% right now — the Fed wants to incentivize spending rather than saving.

* Yes, this is a gross oversimplification.

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