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Congress and President Clinton are smacking their lips over how to spend another massive federal surplus. The same kind of anticipation over the bulging $3 billion-plus surplus in the state budget has caused an epidemic of hyperventilation in Albany.

As the Republican Congress prepares to hear what Clinton wants to do with the money when he serves up his annual message on Thursday, various think tanks are cranking out propaganda buttressing every side of the argument.

Among the most outrageous of these "studies" was one published last week by two esteemed liberal organizations, the labor-backed Economic Policy Institute and the Center for Budget and Policy Priorities.

Washington reporters who think economics is the science of ironing, making beds and cooking, swallowed this rickety report whole last week on a slow news day. Redolent of the dialectic of struggle, this joint study warned of a growing income gap. The rich are getting rich, and the poor are still getting poorer, especially in New York, it warned.

In our state, at least, the report indicated that Former Republican Rep. Jack Kemp's theory that a rising tide lifts all boats is all wet. The most troubling number, on the surface, offered in the report entitled "Pulling Apart" was that the poorest fifth of the state's income groups had lost nearly $2,000 in annual purchasing power in the last decade.

Some critics accused the think tanks of suggesting that the longest economic boom in the nation's history is sowing the seeds of class warfare, and street rage.

There are serious flaws in "Pulling Apart." The conservative Hudson Institute, and others, note that the data does not include the benefits received by lower income households: food stamps, housing subsidies, Medicaid and the Earned Income Tax Credit.

There are worse drawbacks. Brian Backstrom of the conservative CHANGE New York organization said "Pulling Apart" doesn't track the families who entered the lowest income group, say 10 years ago, to find out what happened to them.

"The study implies that nothing happens to people even in a dynamic economy," Backstrom said. "Common sense tells you that isn't accurate. We know people are now getting out of poverty twice as fast as before."

One perplexing pattern in the report was that the states that had the most generous welfare programs seemed to have the deepest poverty. New York has the most elaborate health and income assistance entitlements in the nation -- Medicaid alone is worth between $5,000 and $7,000 per person -- and this nagging income gap. New York ranks No. 1 in assistance.

I asked one of the officials at the Center for Budget and Policy Priorities, Elizabeth McNichol, why generous New York has such impacted poverty.

"Well," she offered, "the size of the group is so big."

It is big because New York's welfare system has been a magnet for immigrants and for families migrating up the Atlantic Coast, said Stephen Moore, an economist for the conservative CATO Institute.

"It is the pre-eminent welfare capital of the country," Moore said.

Meanwhile, the lowest income group is not static, as "Pulling Apart" implies. It is really dynamic, with these new arrivals from the South and overseas entering and leaving this stratum.

"Pulling Apart" will no doubt be used to justify more federal spending, and support arguments against cutting taxes.

Some former admirers of Republican Gov. George E. Pataki fear the report will have the same effect in Albany. And what of the lagging, tax-bedeviled upstate economy?

"There is no evidence whatever that higher levels of assistance or greater numbers of welfare recipients stimulate a state's economy," said Backstrom. He is among a growing number of conservatives who have become disenchanted with Pataki's recent policies.

With his expansion of health-care benefits, Backstrom said, "Pataki was able to do what Hillary Rodham Clinton couldn't -- create a system of socialized medicine."

The new health program will have an added $100 million a year impact on already burdened local governments, Backstrom predicted. Another unfunded mandate on the counties, he said. The worst of these -- the most corrosive, of course -- is Medicaid. New York is one of the few states in the nation that still makes the counties fund half the non-federal share of Medicaid.

What Pataki hasn't proposed doing with his mammoth surplus is what fellow Republican Ned Regan proposed when he was Erie County executive a quarter century ago -- let the state absorb the counties' share of Medicaid. That would trigger property-tax cuts that would have a dramatic effect on narrowing any income gap, real or concocted. Was there ever a better time?

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