Trump's tax plan could disrupt New York's taxation system
Sep 29, 2017
New York’s Democratic lawmakers are vowing to fight President Donald Trump’s tax overhaul proposal, perhaps even in court.
Meanwhile, a think tank’s analysis finds some middle-class New Yorkers could save a small amount of money under the income tax portion of the plan.
Gov. Andrew Cuomo said the tax overhaul plan and the proposal to eliminate state and local tax deductions from federal income taxes would be “devastating” to New York.
“It is a tax increase plan,” Cuomo said Thursday on Long Island. “Period.”
Cuomo said he might sue.
“I believe it’s unconstitutional,” Cuomo said in New York City on Wednesday. “And I would challenge it as double taxation.”
E.J. McMahon, with the fiscal watchdog group the Empire Center, said Cuomo’s characterization of the tax overhaul effects is not completely accurate.
“It doesn’t hurt the middle class,” said McMahon. “That’s absolutely untrue.”
But he said there are problems that come with the plan.
“It would disrupt the state’s tax base in some way,” said McMahon. “Fairly significantly.”
McMahon said New York’s upper middle class and wealthiest could potentially be the biggest losers under the income tax part of the proposal, because they pay relatively high state and local taxes. Even the proposed new and bigger standard deduction would not make up for the loss of the local and state tax deductions.
New York depends on higher-income earners for a significant share of state revenue to keep the budget balanced. Wealthier New Yorkers would benefit from the proposed elimination of the estate tax.
McMahon attempted to analyze, based on the limited details available, what the changes could mean to a typical New York middle-class family, and he found that even with the loss of the state and local tax deductions, many would save a small to moderate amount of money.
First, he looked at numbers downstate, where salaries are higher and the cost of living is higher. He chose the Suffolk County hamlet of Ronkonkoma to use as an example, where the average family income is $137,000.
“Despite losing the deduction for state and local taxes, they end up with the same taxable income,” McMahon said.
But he said there’s a “big if” — that is if the family is allowed to keep their mortgage and charitable deductions in their current form. Republican leaders in Congress have talked about substituting some kind of a tax credit instead.
If mortgage and charitable deductions don’t change, then the Ronkonkoma household would come out slightly ahead, saving about $1,300 in taxes. With a potential child credit added, the hypothetical household could save around $2,000 in taxes a year.
And there are other variables. The personal income tax brackets would be simplified from seven to just three: 12 percent, 25 percent and 35 percent. And it’s uncertain where the transitions would fall.
McMahon also ran the numbers for a typical upstate middle-class family, choosing the Albany suburb of Latham, where the median income is about $83,000. They would potentially make out better, saving from $1,500 to $2,800 on their taxes. But if they don’t have children in the household, they might save only $450.
State Comptroller Tom DiNapoli, whose office did an in-depth analysis of the federal tax proposals in July, said there are so many uncertainties as the process goes forward in Washington, it’s very hard to pinpoint the exact effects on all New Yorkers.
But he said there is a trend in the proposals from Trump and Congress that seems to favor Republican-dominated states over Democratic ones.
“There’s every reason to be very suspicious,” said DiNapoli, who added there would be a “shift of resources” away from “blue states” like New York to other states.
He expects New York’s politicians to keep speaking out.