(AP) - New York's second major income tax increasein two years will charge millionaires more, but give 4.4 millionmiddle-class residents a rare break worth $200 to $400 a year.

Under the plan backed by Gov. Andrew Cuomo, which the stateSenate passed 55-0 Wednesday night and the Assembly approved 130-8early Thursday, those tax breaks will go to most households withannual earnings of $40,000 to $300,000, or single filers making$20,000 to $150,000 a year.

To pay for it, the state will rely on households making over $2million or single filers making $1 million to pay higher taxes.Their income tax rate will increase from 6.85 percent to 8.82percent on Jan. 1.

"This was a function of an economic reality and deterioratingeconomic conditions," Cuomo said after the Senate vote. He said itshould help stimulate jobs with some of the tax cuts andconstruction spending, while closing about $1.5 billion of aprojected $3.5 billion state deficit next year with higher revenuesoverall.

The tax increase will raise $2 billion to pay for themiddle-class tax break, a break in the New York City transit taxfor small businesses, a public-private infrastructure repair fund,a tax break for manufacturers, and $50 million in aid to upstatecommunities trying to recover from historic flooding in the latesummer. The funding is also expected to avoid another year of cutsto education and health care.

"I think we are doing absolutely fabulous in terms of themiddle-income, hard-working taxpayers of the state," said SenateMajority Leader Dean Skelos, a Nassau County Republican.

"It's the first time we've lowered those rates in 50 years,"Skelos said.

Meanwhile, households making $300,000 to $2 million - or singlefilers making $150,000 to $1 million a year - will pay the same6.85 percent rate they would have paid come Jan. 1, when atemporary tax surcharge expires.

The three-year package agreed to by Cuomo and legislativeleaders provides a new tax structure that continues to hitmillionaires harder. A 2009 bill at the beginning of the state'sfiscal crisis created a temporary surcharge that increased theincome tax rates for New Yorkers making $200,000, hittingmillionaires with the highest rate just 0.15 of 1 percentage morethan the new rate approved by Cuomo, Skelos and Assembly SpeakerSheldon Silver.

"We're cutting taxes, in my opinion," Skelos told reporters.

Some questioned that logic.

"So, for the next three years, New York will continue to haveone of the nation's six highest tax rates," said E.J. McMahon ofthe fiscally conservative Manhattan Institute. He said New YorkCity residents will pay the highest income tax rate in the nation,at 12.5 percent.

He said the maximum savings will be just $600 a family with ahousehold income of $300,000, while a family of four making $65,000will save about $222.

The millionaire employers who Cuomo and Skelos once warned wouldmove to Connecticut or New Jersey if they were targeted for taxincreases again face three more years at higher rates.

"Maybe Shelly Silver is raising taxes, but we're cuttingtaxes," Skelos told reporters.

For a year, Silver has pushed for a millionaire tax. But he wasstrongly opposed by Skelos who said it conflicted with basicRepublican values, and by Cuomo who promised in his campaign tofreeze taxes in what he called one of the most heavily taxes statesin the country.

"I think we were able to put together a good package and showedthat government in New York is functioning, that we are differentfrom what is happening in Washington," Silver said. "We arefacing the same economic climate and we are trying to do somethingabout it ... and we will not be faced with the severity of cutsthat we would otherwise be faced with next year. We're puttingfairness and equity into our tax code."

Until last week, a millionaire tax was officially dead inAlbany, according to both Cuomo and Skelos.

But in the last week, Cuomo instead led the Legislature towardSilver's top priority. Cuomo made the case that the world andnational economies continued to be unstable, while weak revenuescreated an unexpected $350 million deficit this year and aprojected $3.5 billion deficit for 2012-13.

"While I am against higher taxes and I believe our long-termeconomic future for this state is enhanced by in fact loweringtaxes to make us more competitive ... If I were to close the entiregap by budget cuts it would decimate essential services doing realharm to the state's economy and strangling local governments allacross this state," Cuomo said.

The Assembly's Republican minority was alone in criticizing thedeal.

Assembly Republican leader Brian Kolb said "taxes are beingraised in New York state and we are still not dealing with ourstate's serious spending problem ... tax hikes have never been theanswer for creating more private sector jobs and long-termprosperity for New Yorkers."