Federal income taxes paid by New Yorkers decreased by nearly $3.4 billion in 2018, the first year of the new federal Tax Cuts and Jobs Act (TCJA), according to newly released Internal Revenue Service data.
The drop in New York’s total federal income tax burden runs counter to the Cuomo administration’s repeated claim that New Yorkers would pay an additional $14 billion as a result of the federal cap on state and local tax (SALT) deductions, a key element of the tax package crafted by congressional Republicans and signed into law by President Trump.
In fact, given the expanded standard deduction and the distribution of rate cuts in the TCJA, it was always clear that the new tax law would result in tax savings for most New Yorkers—and the new data confirm it, showing that taxes paid by New Yorkers dropped in every income range reported in IRS data, up to $500,000. Tax payments increased by 4.3 percent for New Yorkers earning between $500,000 and $1 million, and by 0.2 percent from those earning $1 million or more, the IRS Statistics of Income showed.
(Strictly speaking, the change in federal taxes paid by state residents in 2018 cannot be described as a “savings” compared to 2017 because the base figure is not what New Yorkers would have paid under the previous tax law applied to their actual 2018 incomes, which on average would have been higher than in 2017.)
The touch of SALT
As a share of the 2017 total, the decrease in 2018 income taxes paid by New Yorkers was equivalent to 2.4 percent, barely half the national decrease of 4.5 percent and among the smallest net tax changes in any state. The SALT cap was no doubt a major reason for this—as were New York’s higher average incomes, since the TCJA was geared to provide the biggest percentage savings for low- and middle-income households as defined by broad national standards. In downstate New York, “middle class” definition reaches into the low six-figures, taking in tax filers whose marginal rate cuts were smaller and who had more to lose from the SALT cap.
The national distribution of tax reductions by income range was largely replicated in New York, as shown in the map below. Total taxes paid in the 12-county downstate region, including New York City, decreased just 0.7 percent, while the decrease in upstate counties was 6.3 percent, above the national average. This reflects average incomes, which are much higher downstate than upstate.
The biggest percentage decreases were in upstate New York counties whose household income distributions are closer to or even below the national norm. Conversely, tax payments were higher in 2018 than in 2017 from residents of affluent Westchester and Nassau counties, from those living in the fast-growing Albany suburb of Saratoga County, and from residents of Kings County (rapidly gentrifying Brooklyn). The lone rural county generating higher federal income taxes in 2018 was Sullivan, which is small enough that its total might have been pushed up by a net in-migration of a handful of high-income residents.
The total reduction in income taxes paid by New Yorkers was the fourth largest of any state, trailing slightly behind Pennsylvania’s total decrease of just over $3.4 billion. However, in percentage terms, only six states had smaller changes than New York—including California and Nevada, whose residents paid slightly more in federal income taxes in 2018, as shown below.