New York City--the nation's largest muncipality--spends more money each year than any government in the United States but the federal government and the State of California. The City's annual budget is larger than that of New York State, yet the State exercises an effective legal control over metropolitan finances; it must approve the means by which the City raises its revenue.

In the past, this State power has been the source of frequent skirmishes between the traditionally Democratic City government and the usually Republican State Legislature. Any new sources of revenue that the City wishes to exploit must first be approved by the legislature; since this is an age where budgets grow bigger, not smaller, the City has had to look for expanded revenues each year. Thus, the state's control has become a very meaningful one.

This year, with New York City's budget of more than $2 billion in mind, Mayor Robert F. Wagner went to the State capital in Albany with proposals for $157 million in new revenue, including a tax on legalized offtrack betting. The State--as personified by Governor Nelson Rockefeller and the Legislature--turned down this scheme and cut new funds down to $125 million. Wagner was thus forced last week to present what he called an "austerity" budget, still well over $2 billion.

The Wagner budget has come under attack from both sides: from taxpayers unhappy over increased levies and from city employees dissatisfied with pay increases. Wagner had planned pay raises totalling $32 million, but was compelled to cut them to $18.5 million.

On the income side of the balance sheet, there is much that might be questioned though very little room for change. Once the State has approved new forms of revenue, the City may choose not to use them, but it cannot employ any other taxes not approved; thus Wagner, if he wants money to spend, must raise it in the way the legislature has prescribed. About half of the additional $125 million revenue will come from fairly straightforward increases in the taxes on the gross receipts of businesses and public utilities operating in the City.

But the rest of the new funds take more controversal forms: $20 million from a tax on taxicab rides, $12.5 million from a one-cent increase in cigarette and cigar taxes, $13 million from a two per cent rise in the tax on restaurant meals. The cab drivers have protested loudly and threaten to raise their fares if the taxi tax goes through; the cigarette increase, coupled with a two-cent rise in the State tax, makes the combined State-City levy on a pack of cigarettes a whopping seven cents.

The logic behind these particular forms of tax is that the products and services taxed are basically luxuries; thus, these increases will "soak the rich" without hurting the poor. While the idea involved may be quite noble, the facts of the case do not jibe with the principle. To many New Yorkers, neither taxi rides nor restaurant meals are luxuries; and, as the cabdrivers have pointed out, the taxi tax penalizes one segment of the population for the benefit of another, no more deserving group.

New York City's difficult situation is further complicated by the fact that none of the services it provides (particularly the schools) are as good or as extensive as the civil servants who run them would like them to be. The fact is that the City (like the State and almost all other governments below the Federal level) honestly needs more money than it is getting even with the present record budget. Citizens are willing to be served by their cities and states, but unwilling to pay the cost.

Therefore, when governments look around for new ways of raising money, their efforts are characterized less by statesmanship than by a desire to find the form of taxation most palatable politically. Most state and local taxes are thus make-shift, time-serving devices, and as the need for expenditures grows greater, many cities and states are paying the price in financial crises like those in New York City and Michigan. Until the politicians stop trying to please everyone at once and instead institute broad tax reforms and increases (as Rockefeller has started to do in New York State), the financial situations of state and municipal governments are likely to remain precarious.