As Trump talk taxes, it's time to zero in on deductibility

President Donald Trump is expected to outline his plans for a major tax cut and reform Tuesday night in a speech to Congress. The stakes for New York are very high as he could endorse a plan to eliminate the deductibility of state and local taxes. The issue...

As Trump talk taxes, it's time to zero in on deductibility

President Donald Trump is expected to outline his plans for a major tax cut and reform Tuesday night in a speech to Congress. The stakes for New York are very high as he could endorse a plan to eliminate the deductibility of state and local taxes.

The issue isn’t new. The ability of taxpayers to deduct local taxes from their federally reported income has long been a target of reformers and conservatives. Reformers say it favors the wealthy the most, which it does. Conservatives hate the way it subsidizes states and cities that impose higher taxes and disadvantages states with low taxes. 

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The brackets that benefit in NY

Income*# of taxpayersAverage benefit Under $50K 184,963 $444 $50K-$100K 435,326 $1,246 $100K-200K 329,313 $2,891 $200K+ 197,748 $30,739

Virtually every Republican plan to cut taxes includes an end of deductibility. Because New York has the highest combined state and local tax burden in the nation, the impact on individual taxpayers would be greatest here. As the chart shows, New York and California are in a class by themselves on this issue although residents of Texas and Florida would lose out too, despite having no state income tax.

The great fear is that without the deduction, the state’s wealthiest residents will leave for lower-tax states. The chart shows a lot of money is at stake for them. The other possibility is that Trump will cut their overall taxes so much that the loss of deductibility won’t seem so great. In either case, ending the tax break would be a great test of how much taxes matter for where people live and work. It would be very risky for New York, though.

So far, the Partnership for New York City has taken the lead in putting the spotlight on what is at stake. Whether a broad lobbying campaign is needed will be clear when a tax package passes the House and the issue is likely to be decided in the Senate.

President Donald Trump is expected to outline his plans for a major tax cut and reform Tuesday night in a speech to Congress. The stakes for New York are very high as he could endorse a plan to eliminate the deductibility of state and local taxes.

The issue isn’t new. The ability of taxpayers to deduct local taxes from their federally reported income has long been a target of reformers and conservatives. Reformers say it favors the wealthy the most, which it does. Conservatives hate the way it subsidizes states and cities that impose higher taxes and disadvantages states with low taxes. 

The brackets that benefit in NY

Virtually every Republican plan to cut taxes includes an end of deductibility. Because New York has the highest combined state and local tax burden in the nation, the impact on individual taxpayers would be greatest here. As the chart shows, New York and California are in a class by themselves on this issue although residents of Texas and Florida would lose out too, despite having no state income tax.

The great fear is that without the deduction, the state’s wealthiest residents will leave for lower-tax states. The chart shows a lot of money is at stake for them. The other possibility is that Trump will cut their overall taxes so much that the loss of deductibility won’t seem so great. In either case, ending the tax break would be a great test of how much taxes matter for where people live and work. It would be very risky for New York, though.

So far, the Partnership for New York City has taken the lead in putting the spotlight on what is at stake. Whether a broad lobbying campaign is needed will be clear when a tax package passes the House and the issue is likely to be decided in the Senate.

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