WASHINGTON – President Trump’s tax reform plan would potentially hurt upper-income New Yorkers, and maybe even the middle class, compared to taxpayers in other states – which is why Republican lawmakers from New York and other high-tax states are already lining up to try to change it.
The 200-word outline of a tax plan that Trump released Wednesday would eliminate the current federal tax deduction for state and local taxes.
Tax experts said that might not matter much for lower- and many middle-income New York State residents. That’s because the Trump plan doubles the standard deduction, which might save many taxpayers so much money that they wouldn’t have to worry about the loss of any particular deduction.
That’s not so for upper-income residents of high-tax states such as New York, New Jersey and California. In those states, many wealthier taxpayers could, compared to the wealthy in other states, end up as losers – which is why GOP lawmakers from those states are resisting the loss of the state and local tax deduction.
“Obviously there are about 30 Republicans from those three states and we would be pretty united in saying: ‘Whoa! We need to have an adult conversation about this,' ” said Rep. Chris Collins, R-Clarence.
Rep. Tom Reed of Corning – a Republican member of the committee that will draw up any tax legislation – also expressed concerns about repealing the deduction for state and local taxes, as did Rep. Leonard Lance, R-N.J.
“New Jersey taxpayers would lose under that plan,” Lance said in a statement. “I will be a leading voice in negotiations for maintaining that deduction.”
The proposed elimination of the deduction for state and local taxes was just one of several proposals that could torpedo the Trump tax plan even before it takes the shape of legislation.
The plan faced a barrage of criticism Thursday, a day after its release. But most of all, tax experts criticized it for a lack of detail, which left them guessing about the plan’s ultimate impact.
One part of the tax plan was clear. Trump wants to eliminate almost all personal tax deductions, save for those for mortgage interest and charitable giving, in favor of a simpler system with a bigger standard deduction. The current standard deduction – $6,350 for individuals and $12,700 for couples – would double under the Trump plan.
That would make filing taxes easier for many people, as they would no longer need to itemize their deductions.
But it would also mean that New Yorkers and those from other high-tax states could no longer write off the thousands of dollars they pay annually in state and local taxes. And to hear Treasury Secretary Steven T. Mnuchin tell it, that would be a good thing.
“It’s not the federal government’s job to be subsidizing the states,” Mnuchin told reporters on Wednesday.
That’s not how lawmakers from New York see things, though.
“We understand New York is a high tax state and we care about the impact tax deduction repeal could have on the people we represent,” said Reed, who serves on the tax-writing House Ways and Means Committee. “We will make sure this tax policy – which promotes home ownership – is advocated for at the table, making tax reform simple and fair moving forward.”
Comments like that matter because there are 28 House Republican members from New York, New Jersey and California – and without support from at least 20 of them, it’s unlikely Trump will be able to get the bill approved in the House.
That gives lawmakers like Collins, Reed and Lance the leverage to force the return of the state and local tax deduction – even though some of their constituents may be better off without it.
The Trump plan would eliminate the current seven tax brackets in favor of just three: 10 percent, 25 percent and 35 percent. But the Trump plan didn’t specify the income points where those rates would take effect, making it difficult to accurately calculate exactly how much taxpayers could lose – or gain – because of the loss of the state and local tax deduction.
The tax changes Trump proposes could put more money in the pockets of people who make under $100,000 annually, said E.J. McMahon, founder and research director of the Empire Center for Public Policy, a conservative Albany think tank.
Upstate residents in the top tax bracket would pay just a slightly lower effective tax rate under Trump’s plan – 35 percent compared to 36.1 percent now. More importantly, though, the end of the state and local tax deduction would make it much cheaper for high-income earners to live in states other than New York.
McMahon calculated, for example, that while upstate high-income taxpayers now pay 5.3 percent more in taxes than they would if they lived in Florida, that gap would grow to 8.82 percent once New York taxpayers could no longer deduct their state and local taxes. Downstate, things would be even worse for the wealthy, as they would find themselves paying 12.7 percent more in New York than they would in a state like Florida, which has no state income tax.
“I think it will accelerate a drift away from New York,” as people choose to move to lower-tax states, McMahon said.
And that’s a best-case scenario.
The plan Trump announced this week did not say if it would include exemptions, such as those that currently allow couples to write off about $4,000 in taxes for each of their children.
But the tax plan Trump touted during his campaign eliminated personal exemptions. And if he follows through with that plan, the middle class would get hammered with higher taxes, said Williamsville financial planner Anthony Ogorek.
“I’m thinking this may not be as great a deal as he says it is,” Ogorek said.
That’s just what Democrats say. They are united in opposition to Trump’s plan, presuming that when all the details are revealed, the vast majority of Americans will end up as losers under it.
“Massive tax cuts for the very wealthy, crumbs – at best – for everyone else,” said Senate Minority Leader Charles E. Schumer, D-N.Y.
Rep. Brian Higgins, D-Buffalo, agreed.
“It will hit the middle class taxpayers the hardest – especially those in New York, New Jersey and California,” said Higgins, also a member of the Ways and Means Committee.
Given the fact that Democrats uniformly oppose the Trump tax plan while some Republicans question elements of it, Collins – normally a Trump ally – said it will be difficult to get the plan through Congress.
“It will be a very heavy lift,” Collins said.
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