SALT Caps Mean Fewer Deductions, More Taxes for Many
By Dan Murphy
Are wealthy New Yorkers fleeing the state because of high taxes? Are Westchester residents doing the same because Westchester homeowners pay the highest property taxes in the nation? And if so, are New Yorkers leaving the Empire State because the high property and income taxes that New Yorkers pay are no longer completely deductible on federal tax returns?
Gov. Andrew Cuomo last week, while announcing a new, $2.3 billion budget hole due to decreased revenue collections, blamed New Yorkers moving out as the reason for the budget hole. Cuomo also blamed the new tax laws, which cap state and local income taxes at $10,000 per year as the final straw that has new Yorkers moving to Florida, South Carolina, Texas, and other low-tax states.
“This is not an academic discussion, my friends. This is real life,” said Cuomo. “This changes the economic trajectory of the state. People are mobile. And they will go to a better tax environment.” He called the new tax policy “an economic civil war that helps red states at the expense of blue states.”
Last week, Cuomo met with President Donald Trump at the White House to discuss the matter. “I told the president myself today: SALT repeal is hurting us. And if you hurt New York, you’re harming the economic engine of the nation,” Cuomo tweeted after the meeting.0
Regardless of whether the governor’s claims are true, one thing is for certain: Many of us who live and own a home in Westchester will be paying more federal taxes come April 15, and the reason is the Trump tax cut plan, passed by Congress last year, includes a provision that caps the state and local tax deduction at $10,000.
For most Westchester County homeowners, who pay an average of $17,000 in property taxes, this is bad news. If your tax bill is $17,000, $7,000 is not tax deductible, and any of the state income taxes you pay is also not deductible.
The Trump tax cuts and the SALT limits will likely become more of a political issue after we all file our taxes and analyze how much more we have to pay compared to last year.
County Executive George Latimer said: “Now comes the moment of truth. After railing on Democrats at every level for taxes, we prepare and file our 2018 federal taxes. No SALT deduction. If you pay $20,000 in total property taxes, the county’s 2 percent increase meant a total of $80 more. If you’re paying a mortgage, under $7 per month more. How much does the Federal tax cost you? If you do better this year – less taxes than last year, a bigger return, credit Trump, McConnell and Ryan. If not – if you pay more, a lot more… credit Trump, McConnell and Ryan. They eliminated a tax deduction that had existed for 100 years. Real simple math.”
Westchester Congressman Eliot Engel called the new tax cuts the “GOP Tax Scam.”
“There’s no other way to say it: New York and other donor states like New Jersey, California, Connecticut and Pennsylvania got screwed by the GOP Tax Scam,” he said. “We already pay more in taxes to the federal government than we get back. But now with these new limitations on SALT deductions, the GOP has added insult to injury by creating what amounts to a tax increase for many middle-class families, all to pay for a tax cut for big corporations and the top 1 percent. This injustice cannot stand. My colleagues and I agree that the cap on SALT deductions must be removed immediately and the GOP Tax Scam must also be repealed.”
Engel has cosponsored legislation to restore the SALT deductions to 100 percent.
“Tax season is just getting underway and already people are feeling the pain from the GOP Tax Scam,” he said. “According to the IRS, refunds are down in spite of President Trump’s massive trillion-dollar tax cut. The reason is obvious: The tax overhaul was designed to further enrich big corporations and the wealthiest 1 percent, almost exclusively at the expense of working-class Americans. In our area, the tax hit will be particularly jarring due to the caps on state and local tax, or SALT deductions. I’ve already heard from some people that their tax bill will go up thousands of dollars this year, a stunningly painful turn for many New Yorkers.
“I said many times this GOP Tax Scam was one of the worst bills I’ve ever seen come to the floor of the House. Now the data supports that assessment. We need to start unraveling this mess, and the place to start is the cap on SALT deductions that disproportionately hurt donor states likes New York, New Jersey, Connecticut, California and Pennsylvania. I’ve introduced legislation to repeal these caps that would retroactively apply to this year’s tax return when passed. Similar legislation has been introduced in the Senate and it is my hope that we can work together expeditiously to move these bills along. This needs to be a priority in the 116th Congress.”
But there will not be any changes to the SALT deduction limits in this Congress, because republican Sen. Charles Grassley, from Iowa, who chairs the Senate Finance Committee, has refused to make any changes. Grassley’s spokesman Michael Zona called the deduction “a federal subsidy for states to raise taxes on their residents without political consequence,” and called on states “to lower their taxes instead of insisting that taxpayers from lower-tax states subsidize their profligate spending.”
If SALT deductions were restored without caps, the cost would be $88 billion per year to federal revenues. And the only way to make up the $88 billion is to raise the federal income tax top bracket back up to 39.6 percent from its current rate of 37 percent.
Some Democrats have quietly balked at restoring the SALT deduction, claiming that, yes, it will help the wealthy at a time when democrats are working to combat income inequality.
The governor says that many Northeast states have seen their revenues decline after the Trump tax cuts. “It is not a New-York-only phenomenon,” he said. “It’s states that are suffering under SALT. Especially in the Northeast. New York is down 50 percent, Jersey is down 35 percent, Connecticut 55 percent, Massachusetts 50 percent, California 24 percent.
“If you lose $2.3 billion, you have $2.3 billion less to spend – that is simple, undeniable math. And you look at our funding priorities, it’s education, it’s health care, it’s infrastructure, and we have a middle-class tax cut. Those are the main expenditures. Those would be the main areas that would be affected by a cut.
“SALT encourages high-income New Yorkers to move to other states. Tax the rich, tax the rich, tax the rich. We did. Now, God forbid the rich leave.”
