New York’s Democratic lawmakers are vowing to fight President Trump’s tax overhaul proposal, perhaps even in court. Meanwhile, a think tank’s analysis finds some middle-class New Yorkers could actually save a small amount of money under the income tax portion of the plan.
Governor 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 on Long Island Thursday. “Period”.
Cuomo said he might sue.
“I believe it’s unconstitutional,” said Cuomo in New York City on September 27th. “And I would challenge it as double taxation. “
EJ 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, 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 does attempt to analyze, based on the limited details available, what the changes could mean to a typical New York middle-class family, and he finds that even with the loss of the state and local tax deduction, 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 around $1300 dollars in taxes. With a potential child credit added, the hypothetical household could save around $2000 in taxes a year.
And there are other variables. The personal income tax brackets would be simplified from seven to just three, at 12%, 25%, and 35%. 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 around $83.000. They would potentially make out better, saving from $1500 to $2800 on their taxes. But if they don’t have children in the household, they might save only $450.00.
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, that it’s really hard to pinpoint the exact effects on all New Yorkers. But he said there is a trend in the proposals from President Trump and Congress that seems to favor Republican-dominated states over Democratic ones.
“There’s every reason to be very suspicious,” said DiNapoli who said there would be a “shift of resources” away from “blue states” like New York to other states.
And he expects New York’s politicians to keep speaking out.
