By midnight Monday, more than 9 million New Yorkers will have filed their income tax returns for 2018. And most will then have cause to wonder what the Great New York SALT Panic of 2018 was all about.

Gov. Andrew Cuomo portrayed President Trump’s tax reform and its $10,000 cap on state and local tax deductions as a disaster for the Empire State — “an all-out direct attack on New York’s future” that would effectively raise state and local taxes on middle-class families by 25 percent, as Cuomo predicted in January 2018.

In the months that followed, the governor would frequently repeat the 25 percent tax-hike warning, often adding the claim that residents of downstate suburbs would face an average tax hike of $6,400.

All of this was grossly misleading, to say the least, as New Yorkers are now realizing. In fact, despite the SALT cap, the vast majority paid lower taxes for 2018 than they would have under the previous federal law.

Families in New York’s economically struggling upstate regions — where typical households most closely match the middle-American profile congressional Republicans were aiming to help most — pocketed the biggest tax cuts.

Even in New York’s more affluent downstate suburbs, middle-class families are learning — to their surprise, if they believed the governor — that the new tax law isn’t costing them after all.

For most New Yorkers, lower federal tax rates, a much larger standard deduction, a vastly expanded child credit and a rollback of the Alternative Minimum Tax have offset the SALT cap.

Judging by publicly released details of his 2017 return, Cuomo himself may have saved nearly $10,000 for 2018.

But if the new federal tax law is a low-SALT nothingburger for most New Yorkers, it remains a threat to the state’s finances. That’s because the big losers from the SALT cap are concentrated among the Empire State’s highest-earning residents, the 1-percenters who generate more than 40 percent of the state’s personal-income tax as well as an outsized share of New York City taxes.

Paradoxically, even as the governor bemoans the impact of the SALT cap on New York’s wealthiest households, Cuomo’s new budget just extended for half a decade a supposedly temporary surtax that slams the highest earners, for an extra $4.5 billion a year.

Cuomo had to have those taxpayers uppermost in mind last year when he engineered several budget provisions designed to thwart the SALT cap, including the establishment of government-sponsored “charitable-contribution funds” benefitting public education or health care.

The idea was that New Yorkers could claim a federal charitable deduction for giving to the funds, linked to a state income-tax credit restoring most of their lost SALT deduction. Unsurprisingly, however, the Internal Revenue Service issued a rule rejecting the ploy, leaving Cuomo to fight the agency in federal court.

The governor also promised to “thwart” the feds with an optional payroll tax that would shift a portion of the income tax burden from individuals to employers, who can still deduct salaries as a business expense against federal taxes. But that tax has proved to be so complicated and unappealing that hardly anyone has opted into it.

Last but not least, the state’s third promised SALT workaround was a version of the payroll tax for unincorporated firms, whose profits flow to the individual tax returns of their owners and partners. This would have appealed to the wealthy professionals and Wall Street investors who are among New York’s biggest taxpayers — and biggest federal SALT deduction losers.

But nothing beyond a “discussion draft” of the unincorporated-business tax has emerged from the state’s tax agency, suggesting that the concept is simply too impractical to implement.

Cuomo can’t be faulted for attempting to limit the impact of the SALT cap. But he clearly exaggerated the likelihood that his workarounds would actually, well, work, even as he grossly exaggerated the negative impact of the new federal tax law on most New Yorkers.

This Tax Day, most middle-class New Yorkers are realizing two levels of income tax relief — from Washington and Albany, thanks to an ongoing reduction in state-income taxes on incomes as high as $323,000, which was enacted in 2016 and is due for full implementation in 2024.

The question remains how much longer the richest New Yorkers will keep on footing the state’s and the Big Apple’s bills.

© 2019 New York Post

About the Author

E.J. McMahon

Edmund J. McMahon is the Empire Center’s founder and research director.

Read more by E.J. McMahon

You may also like

Washington shouldn’t fund NY’s “normal” budgets

With the coronavirus lockdown continuing to erode tax revenues, Gov. Andrew Cuomo has turned up the volume on his demands for a federal bailout of the New York state budget. In a weekend briefing, the governor repeated his estimate that the Empire State will need help closing a deficit of $10 billion to $15 billion. “I don’t have any funding to do what I normally do,” he said. Read More

Blame Cuomo for New York’s Medicaid crisis

When it comes to New York’s latest Medicaid mess, the buck stops with Gov. Andrew Cuomo. Read More

Cuomo’s Plate Spinning

Governor Cuomo’s license plate design contest was a PR ploy masking a nickel-and-dime revenue raiser. Read More

Cuomo’s incredible wind-power pander

New York's offshore wind project will demand massive subsidies—ultimately billed to ratepayers. Read More

How Cuomo is cooking New York’s books

When lawmakers in Albany passed the state budget last spring, Gov. Andrew Cuomo declared it “both timely and fiscally responsible.” Timely was true enough. But fiscally responsible? Not so much. Read More

Green Monster Could Eat NY

Gov. Andrew Cuomo said he wanted New York to adopt a limit on greenhouse gas emissions that’s “the most aggressive goal in the country.” Unfortunately for New Yorkers, state lawmakers took him at his word. The Climate Leadership and Community Protection Act now awaiting his signature vastly expands the state’s power to regulate every corner of New York’s economy in pursuit of lower emissions. Yet sponsors didn’t even bother to estimate its fiscal and economic impacts before rushing it through. Read More

New York is looking at an ocean of red ink

New York’s new budget — the actual state-government expenditure plan, that is, as opposed to numerous side issues packaged with it — apparently came in close to Gov. Andrew Cuomo’s bottom line. Read More

$$$ On His Mind

Gov. Andrew Cuomo has spent most of the past two weeks pointing fingers: first at President Trump, whose tax law he blames for a sudden decline in New York’s revenues, and then at state Senate Democrats, whom he holds responsible for the Amazon fiasco. But the blame game will carry Cuomo only so far. In New York state’s executive budget system, the bucks stop with the governor. And, politically, this year’s budget process will be his most challenging yet, testing both his ability to manage legislative relations and his commitment to financial restraint. Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100
Fax: 518-434-3130
E-Mail: info@empirecenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.