By Mike Vilensky 

The coming expiration of a surcharge on high-earning New Yorkers is putting Gov. Andrew Cuomo in a thorny political position.

Known as the millionaire's tax, it collects a nearly 9% levy on household earned income over $2 million, or for individual filers earning over $1 million. It was first put in place in 2009 at the start of the recession and expires at the end of 2017. Mr. Cuomo renewed it once, in 2011, after initially saying he would let it die. He pared it back then with a tax cut for middle-income earners.

The issue arises again as Mr. Cuomo seeks to position himself as a national leader for liberal causes but continues to push fiscal restraint and tax cuts as New York governor. Since taking office, he has pledged to keep state spending growth below 2% annually.

Mr. Cuomo, who declined to comment for this article, has expressed openness to renewing the tax but hasn't taken a firm position on it. He may include it in his annual budget proposal, which his office is expected to present Tuesday in Albany.

"The politics is that Andrew Cuomo wants to have his cake and eat it too, as we all do," said Douglas Muzzio, a professor of New York politics at the City University of New York.

The governor, a Democrat, is facing fierce lobbying to kill the tax from his allies in the business world and Republicans who run the state Senate, and an equally impassioned push to renew it from liberal activist groups and Democrats who run the state Assembly.

Since Mr. Cuomo has alternately catered to and angered fiscal liberals and fiscal conservatives, many of the groups and officials lobbying him see the governor's decision on the tax as a test of his political allegiance.

Sen. John DeFrancisco, the Republican deputy majority leader who is opposed to the tax, described it as "a litmus test" for Mr. Cuomo.

The tax was introduced under Gov. David Paterson as Mr. Paterson, a Democrat, faced a budget deficit amid a recession. It was estimated that the tax would raise $4 billion annually. It is a progressive tax -- meaning the rate increases as earnings increase -- hitting a maximum rate 8.97% for earners of more than $1 million annually.

Mr. Cuomo tweaked the program in 2011. The tax that expires this year is currently set at an 8.82% rate for households earning more than $2.1 million. If the governor and state Legislature don't act this year, that top rate will automatically drop to 6.85%.

The Fiscal Policy Institute, a research group, estimates that the tax brings in some $3.7 billion annually and impacts some 47,000 households.

Mr. Cuomo has often allied himself with business leaders opposed to the tax, including Kathryn Wylde, president of the New York City business advocacy group Partnership for New York City.

He has maintained those ties and others to business leaders in New York City even as he has moved left on fiscal issues, raising the state's minimum wage to a phased-in $15 hourly and implementing the nation's most generous paid family leave program.

But killing the tax holds a particular appeal for business groups and fiscal conservatives who pin New York's declining population on its tax burdens.

"It makes us less competitive in attracting a population that even without the surcharge accounts for half the income tax collected in the city and state," said Ms. Wylde.

Ms. Wylde said the tax repels would-be New York residents who could contribute to the economy. She said she even knows some "high-paid individuals who circle Teterboro until a minute after midnight" to avoid spending enough time in New York to pay state taxes, referring to Teterboro Airport in New Jersey, which largely serves private planes.

E.J. McMahon, the director of the Empire Center, a conservative-leaning policy think tank in New York, has calculated that Mr. Cuomo wouldn't need the money from the higher tax rate if he keeps to his pledge on capping spending growth at 2%.

Those who support keeping the tax see it as protection against possible budgetary cuts to the state from a Republican Congress and White House. They also say the money is needed to pay for some of Mr. Cuomo's recently proposed liberal ideas, like free college for some students and infrastructure spending.

"He has made a lot of progressive proposals, and they have to get paid for," said Michael Kink, the director of a union-aligned liberal advocacy group, the Strong Economy for All Coalition.

A spokesman for New York Mayor Bill de Blasio, a Democrat with whom Mr. Cuomo has famously sparred, said the mayor "strongly supports" the tax and will work with the Assembly to renew it.

The decision could also have national implications, as other states grapple with similar taxes put in place during the recession.

"It is symbolic as well as substantive," said Mr. Muzzio. "If New York retains a tax on millionaires, it is a bastion of liberalism in the Trump era."

Write to Mike Vilensky at mike.vilensky@dowjones.com

(END) Dow Jones Newswires

January 16, 2017 13:48 ET (18:48 GMT)