For Gov. Andrew M. Cuomo, the idea must seem like sweet payback for the pains inflicted on his state by the new federal tax plan: an elegant workaround whereby New York could replace its state income tax with a payroll tax and leave Washington, not Albany, on the hook for billions of dollars in lost revenue.
But like so many white-paper plans, the proposal — while still in its larval stage — is already running headlong into a barrage of practical questions about how precisely such a switcheroo might work.
“The more you think about this,” said E.J. McMahon, a conservative economist and founder of the Empire Center for Public Policy, “the more it makes your head spin.”
MEMORANDUM TO: Governor Cuomo Members of the Legislature FROM: E.J. McMahon Research Director, Empire Center for Public Policy SUBJ: State response to federal tax reform Last month’s passage of the Tax Cuts and Jobs Act, the most sweeping rewrit...
You don’t have to be a fan of the federal tax deal to realize its impact on states like New York has been misrepresented by most of its leading political critics.
E.J. McMahon, research director of the Empire Center for Public Policy, a fiscally conservative research group in Albany, said earlier this week eliminating the state and local income tax deduction would hurt New York.
"From the state budget standpoint, still, if they repeal the income tax deduction, that is a huge threat to New York more than any other state to our tax base, and that's because the state has become dangerously over-reliant on taxes paid by the highest-earning 1 percent," McMahon said.
Plenty of unintended consequences, positive and negative, will be lurking in the fine print of the tax-reform bill unveiled Thursday by House Republicans.
But it’s already clear the plan would clobber Albany’s favorite cash cow: the seven-figure earners who generate more than 40 percent of the state income tax.
Hypocrisy aside, Cuomo’s strident opposition to repeal of the SALT deduction is understandable. Even with a larger standard deduction, the outlined plan might not deliver a big tax cut for middle-class New Yorkers.
As the Empire Center’s E.J. McMahon notes, every one of the state’s 12 “metropolitan statistical areas” saw growth below the national average in 2016.
If New York doesn’t change its ways and get serious about lowering taxes and cutting back regulation, it will keep on losing ground.
Any savings in New York, particularly in the New York City suburbs with high taxes, would be negligible compared with what other states may see, said E.J. McMahon, president of the Empire Center, a fiscally conservative group in Albany.
"This much is clear: A couple falling well within the middle class by downstate standards — people, in most cases, living paycheck-to-paycheck in modest suburban homes — will realize much smaller savings than their counterparts in lower-cost, lower-taxed states across the country," he wrote.