Federal Proposal Would Increase Taxes an Average of $4,500/Year on New York Families
Albany, NY (April 16, 2013)
Governor Andrew M. Cuomo today called on Congress and the Administration to reject proposals included in federal budget discussions that would cost New York taxpayers billions of dollars on their annual tax bill.
The federal proposal would end a long-standing policy of allowing taxpayers to deduct their state and local tax liability, including property taxes, from their federal taxes. If enacted, the measure would result in a nearly $15 billion tax increase for New York families, and average increase of more than $4,500 per taxpayer. The average federal tax bill for affected taxpayers would increase 30 percent. The Governor today released a report submitted to Congress that details the impacts on New Yorkers. The report is available here: http://www.governor.ny.gov/assets/documents/Impact-of-Federal-Tax-Propos...
"The proposals under consideration that would repeal or cap the deduction for state and local taxes would have severe consequences for taxpayers here in New York and across the nation," Governor Cuomo said. "I urge Congress and the Administration to act in the best interests of taxpayers and reject these proposals that would cost New York families thousands of dollars extra each year."
About 3.3 million taxpayers in New York itemized deductions on their federal return in 2010, and virtually all—99.6 percent of them—claimed a deduction for state and local taxes paid. These deductions totaled over $57 billion, compared to $23 billion for the home mortgage interest deduction and $15 billion for the individual charitable contributions deduction.
The proposal to repeal this itemized deduction would result in a $14.8 billion federal tax increase for New York families, with an average increase of over $4,500 per taxpayer. This represents more than a 30 percent increase in the federal tax bill for affected New Yorkers. The alternative proposal in the President's budget which would cap itemized deductions would cost New York taxpayers $3.8 billion by limiting the deduction for state and local taxes.
No income group or region of the state would be spared by the proposals. A breakdown of how these changes would affect New York families by region and income group is listed below:
|Federal Tax Increase on New Yorkers from Repeal of State and Local Tax Deduction – By Income|
|Income||# of Taxpayers||Average Tax Increase|
|LESS THAN $50,000||833,700||$690|
|$50,000 TO $100,000||1,229,300||$1,810|
|$100,000 TO $150,000||591,900||$2,400|
|$150,00O TO $200,000||262,700||$3,600|
|$200,000 TO $300,000||177,000||$5,700|
|$300,000 TO $500,000||99,000||$12,000|
|$500,000 TO $1 MILLION||47,700||$29,500|
|$1 MILLION TO $2 MILLION||22,000||$64,300|
|$2 MILLION TO $5 MILLION||10,000||$145,000|
|GREATER THAN $5 MILLION||4,500||$701,200|
|Regional Impact of Proposed Repeal of State and Local Taxes Paid Deduction|
|Region||# Taxpayers||Average Increase|
|Western New York||139,101||$2,800|
|Central New York||90,926||$2,900|
|New York City||1,081,217||$5,500|
Example of Impact on a Taxpayer
Here's how a New York City family of four with Federal adjusted gross income of $200,000 would be affected: Under current tax law, this New York family would have a federal personal exemption of $15,600, and deductions from federal income tax of $11,183 paid for New York State personal income tax, $6,449 paid for New York City personal income tax, and $3,777 paid for property taxes. The sum of these deductions for state and local taxes paid— $21,408—would lower the family’s taxable income on the federal income tax to $162,992, and the family would owe $33,103 in Federal tax liability.
However, this same family would be treated quite differently if the deductions for state and local taxes paid were eliminated. The federal personal exemption of $15,600 would remain, and the family would have a standard deduction of $12,200. But they would lose $21,408 in deductions for state, local and property taxes they must pay, raising their taxable income to $172,200. They would owe an additional $2,578 in federal taxes for a total federal liability of $35,682—an increase of 8 percent. The benefit to the family from the recent reduction in New York State personal income tax rates to 6.65 percent from 6.85 percent would be swamped by the effects of the Federal elimination of state and local tax deductibility.
The below table details the above described impact on a New York City family of four with Federal adjusted gross income of $200,000:
|Current Federal law||Eliminated State and Local Deduction|
|Federal personal exemption||$15,600||$15,600|
|Federal standard deduction||0||$12,200|
|Deduction for NYS PIT||$11,183||0|
|Deduction for NYC PIT||$6,449||0|
|Deduction for Property Tax||$3,777||0|
|Sum for State/Local Taxes Deduction||$21,408||0|
|Federal Taxable Income||$162,992||$172,200|
|Increase in Federal Tax||$ 2,578 or 8 percent|
Kathryn Wylde, President & CEO of the Partnership for New York City, said, "A cap on state and local tax deductibility runs counter to the country’s economic interests, since the states that would be hurt most, including New York, are already the largest contributors to the federal tax rolls and to national economic output."
Carol Kellermann, President of the Citizens Budget Commission, said, "The Governor’s white paper correctly identifies and quantifies the serious ramifications for New Yorkers and their state and local governments should the U.S. Congress limit the deductibility of state and local taxes and/or municipal bond interest.Federal legislators should be wary of taking actions that will harm New York and could have adverse effects on the national economy."
Representative Charles Rangel said, "I successfully fought to preserve the State and Local tax deduction during the enactment of the Tax Reform Act of 1986, when I told Chairman Rostenkowski, the House Leadership and President Regan that while I would back their efforts to reform the tax code and reduce the tax rates I would work to defeat the bill if the State and Local tax deduction was eliminated. This provision is just as important today as it was then. The Report provided today by the Governor provides us with the ammunition we need to safeguard this important deduction and to preserve State and local tax exempt bonds, which no one even considered eliminating in 1986. "
Representative Eliot Engel said, “I am concerned about recent tax proposals which would adversely affect middle class New York taxpayers. We must not add burdens to New York families by limiting deductions which are important to building and sustaining a viable middle class.”
Representative Nita Lowey said, "Not only does New York pay more in taxes than it gets back, it also has the highest cost of living in the country. A cap on state and local tax deductions would unfairly impact many New Yorkers."
Representative Jerrold Nadler said, "I strongly support maintaining the deductibility of state and local taxes. At a time when the federal government is gutting programs and services left-and-right and asking states and localities to do more, we shouldn't discourage states and local government from raising the revenue needed to perform vital services for our communities – namely, educating our children, keeping our neighborhoods safe, and caring for those most in need. By limiting the state and local tax deduction, the federal government would be creating a perverse incentive to artificially keep those taxes below an arbitrary cap set by the federal government."
Representative Peter King said, “With an economy still feeling the negative effects of Hurricane Sandy, the last thing New York families and small businesses need is a greater tax burden. I oppose any changes that would disproportionately burden New Yorkers and result in higher state and local taxes.”
Representative Carolyn Maloney said, “Capping federal tax deductions at 28% will hurt New York City’s economy and cost jobs. The effect of that cap on the longstanding deductibility of state and local taxes means tax bills could go up by more than $5,000 for nearly one million New York City residents. While I support smart ways to increase revenue, they need to be fair. In a state that already sends more to the federal government than it receives in federal assistance, increasing the tax burden in this way is misguided.”
Representative Nydia M. Velázquez said, “Elimination of the federal deduction for state and local taxes would mean a greater burden on New York’s working families. As our economy continues its recovery, this proposal would be a step in the wrong direction.”
Representative Carolyn McCarthy said, “Millions of Americans just held up their end of the bargain – paying their taxes yesterday – and the federal government should as well. We should honor the precedent of federal tax deductions that have helped millions of Americans and explore other ways to reduce our national deficit, such as a more fair rate structure that takes cost of living under consideration under comprehensive and long-term tax reform.”
Representative Joseph Crowley said, "Americans just completed filing our federal tax returns, and we were reminded of the economic importance certain itemized deductions provide - especially the deduction for state and local taxes. As Congress begins the process of reforming our tax code, we need to focus on how to make the tax code more fair, more simple, and more equitable. Unfortunately, efforts to cap itemized deductions, especially state and local taxes, run counter to these very goals. I welcome Governor Cuomo's leadership in raising awareness of the importance of protecting itemized deductions for New Yorkers, and I will continue to stand firm against plans to cap deductions for middle class Americans.
Representative Tim Bishop said, “I applaud Governor Cuomo’s leadership in support of preserving the tax exempt status of municipal bonds. Last week, I was joined by Long Island’s county executives and comptrollers who agree that it would be very unwise for us to eliminate it, because it really is just a cost shift from the federal government to the local governments. We would either see higher property taxes or less of what Suffolk County needs.”
Representative Bill Owens said, “As Congress considers a major update of the tax code, it is critical that we remain mindful of the value many deductions like the state and local tax deduction offer to families and small businesses across New York. This is a process that needs to move forward with care and thoughtfulness to protect the middle class, and I look forward to a robust, bipartisan debate on how we can best keep taxes low while eliminating unnecessary complexity in the tax code and ensuring fairness.”
Representative Michael Grimm said, “In Staten Island, we are taxed and tolled to death, and constantly facing rate hikes on everything from water to property taxes. The hard-working families and individuals in my district simply cannot afford to be punished with another tax. Eliminating deductions for state and local taxes would subject New Yorkers to double taxation, instead of putting more of their hard-earned money back in their pockets. I stand with Governor Cuomo in support of maintaining this important federal deduction, and will do all I can to ensure that it is preserved.”
Representative Grace Meng said, "Deductions for state and local taxes are critical to hard working middle class Americans. Capping them would not be the right decision, particularly as our fragile economy continues to recover. As we work to reform our tax code, it is essential that we protect this important deduction, and I thank the Governor for highlighting this crucial issue."
Representative Sean Patrick Maloney said, “This plan will increase taxes on hardworking middle class families in the Hudson Valley, and that's just wrong. In the Clinton White House, we balanced the budget the right way by growing the economy and supporting the middle class.”