NEW YORK (Reuters) - A New York State commission is proposing $2 billion in tax cuts over the next three years as lawmakers prepare to wrangle over the state's $140 billion budget early next year.

Governor Andrew Cuomo, a Democrat, appointed the commission as part of his effort to reverse New York's image as a high-tax state. The commission had a dual mandate to look at property taxes and taxes seen as onerous to businesses.

Among its recommendations are a 2-year property tax freeze, a cut in corporate tax to 6.5 percent, its lowest level since 1968, and reduction in tax on firms involved in manufacturing to 2.5 percent, its lowest level ever.

The proposals are likely to be a starting point for tax reforms in Cuomo's budget proposals and updated financial plan that he will present to state lawmakers in January.

"I look forward to working together with the legislature to review these recommendations and continue our efforts to reverse the state's reputation as a tax capital," Cuomo said.

The commission was chaired by former New York State Governor George Pataki and former state Comptroller Carl McCall. Another commission charged with making proposals to slim down the state's entire tax code issued a report in November.

New York state ranks low in surveys of taxation and ease of doing business. The state came last in recent report by the Tax Foundation that faulted "complex, non-neutral taxes with comparatively high rates."

The Cuomo administration believes that its prudent budgeting policies, including capping state spending growth at 2 percent, has given it a $2 billion surplus that it can use to cut taxes. The state legislature, however, may have other ideas.

Tax cuts are not the only priority said New York Assembly speaker Sheldon Silver. "At the same time it is important that we have the resources necessary to fund vital programs including education, universal pre-k and the DREAM Act," he said.

Elizabeth Lynam, a New York state budget analyst with the Citizens Budget Commission said talk of a surplus may be premature.

"The theory is if they keep their spending to 2 percent they think that there will be excess resources, obviously that's a stretch," she said. "We know the legislature tends to want to spend money. If they suspect there's money there going to be a lot of competing proposals put forward to spend that money."

(Reporting by Edward Krudy; Editing by Richard Chang)

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