NY Gov may use econ stimulus aid to avoid tax hikes

NEW YORK Tue Feb 10, 2009 8:42pm EST

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NEW YORK Feb 10 (Reuters) - New York state might be able to use some of the federal economic stimulus funds to avoid some of the 137 business and consumer tax increases now planned for next year, Governor David Paterson said on Tuesday.

This was a switch in policy by the Democrat who previously resisted calls by Republicans and other opponents who said the state should use some of the new federal dollars to help close a $13 billon deficit.

At a midday news conference, Paterson said the stimulus money the state will get should instead be used to "create a surplus to protect us from the deficit."

But at a later second news conference, he said he now was open to spending some of the stimulus funds instead of raising taxes. "We would hope to try to do that," said the governor, who has proposed an array of tax increases, including unpopular levies on non-diet soft drinks and Internet sales.

"I think my idea about the federal stimulus has changed," Paterson told Albany reporters.

New York's legislature will break until about Feb. 15, and by then Congress should have approved the $800 billion-plus stimulus plan. The state's budget is not due until March 31, so lawmakers will have time to act, Paterson said.

Though Paterson is under pressure from fellow Democrats to raise income taxes for people who earn at least $250,000 a year by about two percentage points to 10.3 percent, he said he would only consider that measure if the deficit worsens beyond the point that it can be closed by cutting spending.

The governor has proposed about $11 billion of reductions, and Paterson said: "Where I am drawing a line in the sand is not over the potential of taxing the rich, it is over the necessity of the types of spending cuts that we implement." (Reporting by Elizabeth Flood Morrow in Albany and Joan Gralla in New York)

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