By JOSEPH SPECTOR and CARA MATTHEWS
Albany Bureau Chief
ALBANY -- The state Legislature was in a special session Wednesday night to adopt an income-tax cut for the middle class and raise $1.9 billion through higher taxes on the wealthy.
The Senate passed the measures 55-0 around 9 p.m. The Assembly was expected to approve the legislation later in the evening.
Lawmakers spent the afternoon in briefings on the two bills they will be voting on and waiting for the legislation to be printed. Neither the Senate nor Assembly had voted on the measures as of early evening.
The deal includes a $250 million payroll tax cut for businesses within the Metropolitan Transportation Authority region and $50 million in flood relief for regions socked by tropical storms Irene and Lee.
A $25 million tax-credit program would be created for employers who hire inner-city youth during the first six months of next year. Another $37 million would be provided for job-training programs for youth in impoverished areas.
"This is a plan that the Legislature can and should pass. In times of crisis, it is important that government acts and now government must act in New York," Cuomo said in a video message Tuesday.
The first-year Democratic governor had vowed through the year to let an income-tax surcharge on those earning more than $200,000 a year expire Dec. 31.
Before the tax expires, Cuomo reached a deal this week that would provide a tax cut to the middle class and keep higher taxes on those earning more than $300,000. Still, the tax hike on the rich is less than the expiring rate, giving all taxpayers a break in January.
Cuomo officials said the deal would alleviate about $1.5 billion of the state's roughly $3 billion to $3.5 billion deficit in the 2012-13 fiscal year, which starts April 1.
Senate Deputy Majority Leader Thomas Libous, R-Binghamton, said the changes in the tax code are justified.
"This is viewed as a real millionaires' tax. It's about fairness for the tax code. For 99.8 percent of New Yorkers, this is a great deal. They're going to see a tax cut, and that's what we're here for."
Assembly Minority Leader Brian Kolb, R-Canandaigua, Ontario County, knocked the agreement, suggesting that Cuomo is going back on his pledge to not raise taxes.
"I think that in a fragile economy we shouldn't be raising taxes on anybody," Kolb said, adding the backroom agreement without public debate was "terrible."
The top rate was originally set to return Jan. 1 to 6.85 percent for all individuals earning more than $20,000 a year -- a flat tax that Cuomo said was unfair.
But under the agreement, joint filers earning more than $2 million a year would pay a tax rate that drops from 8.97 percent to 8.82 percent.
For people earning between $300,000 and $2 million, the rate would fall from between 7.85 percent and 8.97 percent to 6.85 percent.
For those earning between $150,000 and $300,000, the rates would drop from 6.85 percent to 6.65 percent. For those earning between $40,000 and $150,000, the rates would drop from 6.85 percent to 6.45 percent.
"It will put money back into the pockets of New Yorkers and allow them to spend it how they want, invest it how they want," said Sen. David Carlucci, D-New City, Rockland County. "That's really going to stimulate the economy, I believe."
Carlucci said he would prefer that the MTA tax be eliminated altogether, and he plans to push for that in next year's legislative session. The payroll tax is a "job killer," he said.
Lawmakers made a late change to the MTA payroll tax deal. The payroll-tax cut for businesses in the MTA region was initially going to expire at the end of 2014. But the sides Wednesday agreed to make the cut permanent, relieving about 80 percent of small businesses from having to pay the tax.
"Our conference did not want a sunset," said Sen. Stephen Saland, R-Poughkeepsie. "The idea that it was going to sunset was simply unacceptable."
The MTA deal also exempts private schools from having to pay the tax, which was first implemented in 2009. Public schools had been exempted, but they were reimbursed by the state for the tax. Under the new deal, schools won't have to pay the cost upfront.
Sen. Greg Ball, R-Patterson, Putnam County, called the package "an absolutely incredible deal for the middle class and working families" in the state.
"I'm so happy to see the repeal of the MTA payroll tax for the vast majority of payers and necessary reform in the tax code, making it more just," he said, adding that additional changes are needed for a fair tax code.
Assemblywoman Sandra Galef, D-Ossining, Westchester County, said the deal is a "real good compromise. I think having different rates for income tax purposes, more graduated rates, are a good idea."
Business groups largely supported the agreement, despite their strong contention throughout the year that the state should let the tax rates fall at year's end. They lauded the entire package as a way to spur economic growth in the state.
"This is something that is long overdue and comes at a good time as we approach the end of the year," said Brian Sampson, executive director of the Rochester-based Unshackle Upstate.
Good-government groups said there should have been an open process in developing the legislation that allowed for public input. Rank-and-file lawmakers did not participate in crafting the bills, she said.
"Unfortunately, this is the way too much happens in Albany," said Barbara Bartoletti, legislative director of the state League of Women Voters.
Editorial pages had mixed opinions on the deal.
The Wall Street Journal said Cuomo "is pitching this as 'tax reform,' but that's a ruse to disguise the fact that he's repudiating his 2010 campaign pledge not to raise taxes on anyone while letting a previous income-tax surcharge expire on schedule at the end of this month."
The New York Daily News said "Chalk up a grand slam for Gov. Cuomo in pulling off a deal on taxes and spending that's chock-full of economic and political good news."
Sen. James Alesi, R-Perinton, Monroe County, said there is more collaboration between the Legislature and the administration than there has been in years.
"We have a governor that we can work with, that has a strong focus on where we need to be and how we get there, and if we have to move around a bit to get there, it looks to me like he's done it the best possible way," he said.