On the scale of recent Albany misdeeds – Client 9, a legislator expelled for playing Freddy Krueger with his girlfriend’s face, rival state senate factions facing off with separate gavels – the state legislature missing its budget deadline last week wasn’t especially egregious. It wasn’t even novel: In all but two of the last 26 years, the budget has been late, making this a beloved New York tradition.

This year’s Albany stalemate, though, has higher stakes. The standoff is largely over just which services to cut to stanch the flow of red ink: the state deficit, already at $9 billion, will grow by $5 billion next year when the federal stimulus runs out. Right now, the Senate is largely going along with Gov. Paterson’s doomsday cuts – including $1.4 billion in cuts to school spending and no help for the cash-starved MTA – while the Assembly would like to tone down the carnage to PG-13 levels.

Getting just about zero legislative love, meanwhile: a proposal by the Better Budget Campaign (a group made up mostly of unions and social service agencies) for an income-tax surcharge on New Yorkers making more than $200,000 a year, plus temporary restoration of part of the tax on stock sales, which since 1981 – in a typically bizarre Albany sleight-of-hand – has been officially collected but then instantaneously rebated in full.

Nobody likes to raise taxes, especially in the midst of an economic slump. But there’s actually a good economic argument that if there’s ever a time to soak the rich, this is it. The fear that wealthy New Yorkers will take flight to other states – expressed most famously by Mayor Bloomberg in last year’s “we love the rich people” speech – has little evidence to support it: Even New Jersey only drove off a handful of families with its “millionaires’ tax” in 2004, and it landed $800 million in extra revenues. And if you’re going to tax somebody, most economists agree it’s less damaging to hit up the rich than the masses (who would bear the brunt of Paterson’s proposed soda and cigarette taxes): Schoolteachers, the reasoning goes, will spend their cash at local stores, while rich folks are more likely to sit on it like Scrooge McDuck.

Meanwhile, the alternative – cutting services – could be worse for all concerned, and not only because, as Anatole France might have observed, the rich and poor alike have the right not to have their garbage picked up. Lousy local services can be a drag on the economy as well: When Site Selection magazine conducted its latest poll of corporate real estate executives’ reasons for choosing where to locate their businesses, the top considerations were transportation infrastructure and a skilled workforce – ahead of local tax rates.

“Businesses are really looking at this based on what kinds of employees they are needing to attract and retain,” says Princeton-based corporate relocation consultant Jay Biggins. Part of potential employees’ consideration on where to live, he says, is “how much of a struggle it is for their people to get to work, to find an affordable place to live, to get the garbage picked up.” If those services become unraveled, he says – especially if tax hikes are ultimately necessary as well – “it can motivate companies to start pulling at the threads of what keeps them in the city.”

Given that the items on the chopping block in Albany currently include not just schools and mass transit but job training programs (the Assembly would, at least, restore some summer jobs funding), this bodes ill for the state’s economic future. Word out of Albany is that the stock transfer tax, which at least had populist Wall Street-bashing sentiment going for it, had initial traction in the Senate but was dropped in the face of opposition from Assembly Speaker Sheldon Silver, whose district includes the financial district. Silver and his patrons might want to reconsider: Higher taxes are a tough pill to swallow, but without decent schools and train systems, New York is just Michigan with better bagels.