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Tax plans boost business – but not real estate, charities or colleges

WASHINGTON – Republicans in Congress hope to make business boom by cutting the corporate tax rate 43 percent.

Yet from Buffalo's suburbs to its burgeoning downtown, from the halls of its charities to those of its biggest university, people think the GOP tax plans could do grave damage to the businesses and institutions they serve.

Local realtors worry that that the plan to slash the state and local tax credit will knock the life out of the housing market.

Development experts worry that the loss of lucrative tax credits could put a crimp in Buffalo's building boom.

Executives at local nonprofit groups think the tax plans include an unintended incentive to give less to charity.

And university officials say the tax plans will make college more expensive for undergrads and prohibitively pricey for graduate students.

Those worries persist for one big reason. The GOP tax plans, just like the economy itself, are complicated. And while cutting taxes would in theory help any company's bottom line, simplifying the tax code means that some entities will lose tax breaks they have long enjoyed.

Analysis: Winners and losers in the Senate GOP tax plan

Here's a closer look on how the GOP tax proposals would affect business in general and important sectors of society in particular:

Business big and small

The bill would cut the corporate tax rate from 35 percent to 20 percent. In the Southern Tier district of Rep. Tom Reed, the average small business would save $3,000 annually, said Reed, a Republican from Corning.

"That is more their money that they can invest in their business, grow their business," Reed said. "And if they're growing, what that means at the end of the day are jobs right in our backyard."

Rep. Brian Higgins, a Buffalo Democrat, isn't so sure about that. He said the tax cuts are too heavily skewed to the wealthy and to big business. Many average taxpayers won't get any break at all.

"This will do nothing to stimulate the economy," Higgins said. "Virtually every economic analysis of this....categorically rejects the argument that this is going to produce growth."

The GOP tax proposals would, however, produce tax savings for even the smallest businesses.

Under the latest House version of the bill, many owner-operated companies would be able to have 30 percent of their income taxed at the new 20 percent corporate rate. That's almost half the rate many are paying now. They would continue to pay the higher rate on the rest of their income.

The tax plan also leaves in place some of the business tax breaks under current law.

Solar energy, an industry important to Buffalo's future, would see no quick changes. The residential tax credit for installing solar panels would continue through 2021, just as it would under current law. The tax credit for commercial and utility solar projects would continue for another decade.

The housing market

Real estate pros think the tax plans could do grave damage to the housing market because they endanger two tax breaks aimed at boosting homeownership.

Most important to New York State is the proposal to cut or eliminate the deduction for state and local taxes. The House bill would limit that deduction to the first $10,000 of property taxes, while the Senate bill would wipe out that deduction – and the one for state and local income taxes – entirely.

The House proposal would cost about a fifth of Erie County's taxpayers an average of $2,884 a year, according to Gov. Andrew M. Cuomo. That's enough to put a damper on the American dream of homeownership for many, said Daniel Locche, director of governmental affairs for the Buffalo Niagara Association of Realtors.

"It's really pounding the middle class," said Locche, who said the proposed moves could result in an end to the area's recent run-up in home prices.

The impact could be even worse for purchasers of high-end homes, he said. That's because the House proposes to cap the mortgage interest deduction at $500,000.

Writ large, the end of the "SALT" deduction could be devastating for the region and its housing market in another way, said Steven Elwell, vice president of Level Financial Advisors, in Amherst.

"New York will become even more of a high-tax state for retirees, and that may prompt more people with the ability to move to actually do it," he said.

Development doldrums

Construction cranes could become a less common sight in Buffalo, too, because of some elements of the tax proposals, according to people familiar with the legislation.

The House bill does away with the historic preservation tax credit, while the Senate tax bill cuts it in half, from 20 percent to 10 percent.

Historic tax credits crucial to Buffalo's comeback in jeopardy

Nearly 70 historic properties in Buffalo – including Hotel Lafayette, the Guaranty Building and the H.H. Richardson Complex – sprung back to life with the help of that tax credit.

Without it, "it calls into question whether a lot of projects will get done," said Steven J. Weiss, a Buffalo attorney who specializes in helping developers use tax credits.

A "new markets" tax credit, which was used to help finance Roswell Park Cancer Institute's first new tower in decades and other local projects, would disappear, too, under both versions of the tax bill.

The House bill also would bar tax-exempt municipal bonds from being used on projects being built by private developers. That's a frequent way of financing government-backed projects ranging from housing developments to football stadiums.

The loss of that financing tool would be devastating for local communities, Weiss said, and a coalition of affordable housing advocates agreed.

“This tax reform plan would take desperately needed affordable housing away from low-income New Yorkers in all corners of our state," the coalition said in a statement.

Less charitable giving?

Simplicity is one of the keys to the GOP tax reform effort – but charities could end up paying for it.

That's because both the House and Senate tax plans nearly double the standard deduction, to $24,000 for a couple filing their taxes jointly.

That means far fewer people will itemize their deductions. And that could prompt fewer people to give to charity, since  there wouldn't be an incentive for so many people to add up every little bit they donate to get a bigger deduction.

"It could have a negative impact on giving," said Sister Mary McCarrick, diocesan director for Catholic Charities of Buffalo.

That's why Buffalo-area charities have joined a national lobbying effort to change the tax bill so that taxpayers could deduct charitable donations even if they take the standard deduction.

But what if that doesn't happen?

Under the House tax bill, charities nationwide could lose up to $13 billion a year, Una Osili, a professor at the Lilly Family School of Philanthropy at Indiana University, recently told NPR.

United Way of Buffalo and Erie County figures its donations could shrink by as much as $750,000 annually because of the change.

"That would result in a corresponding reduction in the programs and services we're supporting," said Michael Weiner, president and CEO of the local United Way organization

Taxing students

Universities and colleges suffer in several ways under the House tax bill, but some of the proposals that worry academics the most – such as ending the tax breaks for student loan interest and employer-provided educational assistance – didn't make their way into the Senate bill.

Educators remained focused, though, on the House proposal – which, according to the American Council on Education, would cost college students $65 billion between 2018 and 2027.

"Eliminating employer-provided educational assistance, the student loan interest deduction, and other critical higher education tax provisions is counterproductive as it undermines the very workforce Congress seeks to support," said Mary Sue Coleman, president of the Association of American Universities.

Among the most worrisome proposals is one to start taxing the tuition waivers that many graduate students receive. Graduate students who receive funding at the University at Buffalo typically get a $10,870 tuition waiver, and would likely have to start paying taxes on it out of their annual stipend of about $18,000 a year.

That means fewer quality students will apply to graduate school, and those that do will likely fall deeper into debt, said Graham Hammill, vice provost for educational affairs and dean of the Graduate School at UB.

While Republicans say their tax reform efforts will boost the economy, Hammill doubts that taxing grad students would serve that purpose, given that it will leave the populace more poorly educated overall.

"This is not just going to have an effect on graduate schools or universities," he said. "It's going to affect our overall ability to be competitive as a society."

A middle-class tax cut? It depends who and where you are


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