NYC mayor opposes raising taxes on rich despite Governor

New York City Mayor Michael Bloomberg speaks during a news conference to announce the arrest of Jose Pimentel in New York November 20, 2011.

NEW YORK (Reuters) - New York City Mayor Michael Bloomberg on Monday spoke out against Governor Andrew Cuomo's expected recommendation for higher taxes on the wealthy.

Bloomberg, a political independent, and Cuomo, a Democrat, had both rejected extending a state income tax surcharge on millionaires that ends this year. But Cuomo softened his stand on tax hikes in recent weeks as a budget gap developed.

"I think you have to look at everything, but fundamentally you cannot tax your way out of problems," Bloomberg told reporters. The city benefits indirectly from the surcharge, which goes to the state which then has more money to spend.

The governor, in a Sunday editorial, said he wanted the legislature to take up issues including "a comprehensive reform of our tax code to make it fair, affordable and one that incentivizes economic growth."

This could include creating more state tax brackets for wealthy and middle-class taxpayers, according to media reports. A new tax bracket for the wealthy would be slightly below the current top rate of 8.97 percent, but just above the previous 6.85 percent rate.

That would mean wealthy taxpayers would contribute less than the current top rate once the surcharge ends, but pay a higher rate than the 6.85 percent level that existed before the three-year levy was introduced.

Both New York and New York City need more tax revenue as they face daunting budget gaps in the next few years. For the state, the cash crunch is particularly urgent. A $350 million deficit has opened up in the current $133 billion budget, while next year's could have a $3.5 billion hole.

Arguments over whether taxes should be raised on the wealthy are also playing out on the national stage. And in New York, economists have clashed over whether raising taxes on the well-to-do will drive people to move to lower-tax states.

The mayor has cut the city's spending nearly a dozen times since 2007. "You have got to get your expenses under control, so if you have tax revenues increase, they should come from an expanded economy as opposed to tax rates," Bloomberg said.

The Democrat-led Assembly, which is returning for a conference on Tuesday, has long advocated higher taxes for the rich. The Republican-controlled Senate, which returns for a conference on Wednesday, has opposed this policy.

Cuomo also wants to use public-private partnerships with "business and labor" for an infrastructure fund to upgrade and develop highway, bridges and other construction projects.

One candidate is expected to be the 1950 Tappan Zee Bridge, which will cost as much $6 billion to replace. Union pension funds could be tapped to invest in that kind of project.

Cuomo also wants to develop "destination" gaming resorts, so that New Yorkers don't take their business to other states. Legalizing so-called table games, such as poker, requires a constitutional amendment.

His agenda also would support the Regional Economic Development Councils and a New York Youth Works program would help unemployed minorities with job training and placement, and offer tax credits for employers who hire and train them.

(Reporting by Joan Gralla; Editing by Andrew Hay)