NY’s new tax break—for a few

by E.J. McMahon |  | NY Torch

Non-itemizersOut of the clear blue sky, a provision making labor union dues fully deductible for state personal income tax purposes was inserted in New York’s final fiscal 2018 budget deal, which was enacted by the Legislature over the weekend.

Governor Andrew Cuomo had not previously advocated or included such an idea in his annual budget proposals, and it appears no standalone bill proposing an expanded tax deduction for union dues has been proposed in the state Legislature since 2007, when it was part of a one-house Assembly bill.

On both the federal and state level, union dues (and “agency fees” paid by non-union workers in jobs covered by union contracts) are already included in the category of “miscellaneous” itemized deductions, which are limited to amounts exceeding 2 percent of gross income.

Few taxpayers claim miscellaneous deductions on the federal or state levels. And itemized deductions in general are not common among the majority of New York taxpayers, thanks to a generous standard deduction—which, at $15,950 for married filing jointly, $11,150 for heads of households and $7,950 for singles, typically exceeds deductible expenses for the average worker or working couple. Higher standard deductions simplify the filing process and provide taxpayers with larger savings than they would collect by itemizing. The income distribution of households claiming itemized deductions is portrayed below.

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As shown, more than 80 percent of filers with incomes below $50,000 and nearly 70 percent of households between $50,000 and $100,000 claim the standard deduction and do not itemize on their state returns. Itemizing becomes more common at income levels above $100,000, and itemizers become a majority among filers with incomes above $150,000.

Most New York union workers— such as home health aides, school bus drivers, office clerks, along with public employees in upstate rural areas and small cities—won’t save anything from this new deduction created by Part OOO of the “big ugly” revenue bill passed by the Senate last night and the Assembly a day earlier.

The benefits will flow almost entirely to the rarified class of union workers who make well above $100,000. These are mainly police officers, firefighters and school teachers in Long Island and the lower Hudson Valley, along with the higher-paid New York City building trades. Downstate workers also are more likely to be already itemizing large deductions for property taxes and mortgage interest on higher-priced homes.

Assuming that one quarter of New York’s 2 million unionized workers itemize deductions, and that the initially cited budget revenue impact of $35 million is correct, the average tax savings will come to $67.  Not so much a giveaway as a gratuity.

Think of it as dinner and a movie, on the taxpayers’ dime, flowing principally to some of America’s best paid public employees. Not incidentally, it’s also an indirect subsidy for the state’s most politically powerful unions.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.