Families Could Pay Thousands More
Gov. Andrew M. Cuomo called on Congress and the Obama administration to reject proposals included in federal budget discussions that would cost New York taxpayers billions of dollars on their annual tax bill.
According to Cuomo, 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 released last Tuesday, Apr. 16, a report submitted to Congress that details the impacts on New Yorkers. The report is available at www.governor.ny.gov/assets/documents/ Impact-of-Federal-Tax- Proposals.pdf.
“The proposals under consideration that would repeal or cap the de- duction for state and local taxes would have severe consequences for taxpayers here in New York and across the nation,” 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, Cuomo stated. Taxpayers making less than $50,000 will see an average tax increase of $600. Those making between $50,000 and $200,000 could see their taxes rise by between $1,810 and $3,600.
Those making between $200,000 and $1 million would face average increases between $5,700 and $29,500, while those making over $1 million could be hit with a tax increase of between $64,300 and $701,200.
More than one million New York City residents would be affected by the current proposals for the federal budget. On average, their taxes could increasee by $5,500.
Under current tax law, this New York family of four making $200,000 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 in- come to $172,200. They would owe an additional $2,578 in federal taxes for a total federal liability of $35,682-an increase of eight 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.
Rep. Carolyn Maloney said, “Capping federal tax deductions at 28 percent 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.”
“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,” added Rep. Nydia Velázquez.
“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,” said Rep. Joseph Crowley. “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.”
“Deductions for state and local taxes are critical to hard working middle class Americans,” noted Rep. Grace Meng. “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.”