The vagaries of the calendar have extended this year’s income-tax filing deadlines to midnight tomorrow, April 17. New Yorkers, especially, can use the extra time to cope with their state’s increasingly complex and confusing tax code.
Over the last dozen years, the IT-201 (New York’s long form) has swelled to four pages – twice as many as the federal 1040 form. This doesn’t include the extra paperwork needed to claim any of New York’s 34 separate income-tax credits, which have spread like weeds over the last dozen years.
Though computer software like Turbo Tax has eased tax preparation for many, New York’s dizzying array of tax exclusions and options still poses more than its share of brain-teasers for filers who want to make sure they are taking advantage of every break available to them.
Most of us can safely assume we’re not eligible for items like the Biofuel Production Credit, the Fuel Cell Electrical Generating Credit, the Brownfield Redevelopment Credit, the Security Officer Training Tax Credit, the Historic Barn Credit or the Employment Incentive Credit (which is not to be confused with the Employment Incentive Credit for the Financial Services Industry).
But what is one to make of the Accumulation Distribution Credit? If you have a furnace in your basement, might you qualify for the Home Heating System Credit or the Residential Fuel Oil Storage Credit?
If you bought a house last year, should you claim the Special Additional Mortgage Reporting Tax Credit? Can parents of young children who qualify for the new Empire State Child Credit also continue to claim the Dependent and Child Care Credit? The only way to know for sure is to read the fine print – and even then, the answer may be elusive.
Credits aren’t the only source of clutter on the state income-tax form. While the federal return lets taxpayers voluntarily give three bucks to the federal Presidential Election Campaign Fund, New York’s IT-201 now includes optional check-off boxes for seven different causes: the Return a Gift to Wildlife Fund; Missing and Exploited Children; the World Trade Center Memorial; the Olympic Fund, and special research funds for Alzheimer’s disease, breast cancer and prostate cancer.
New York’s growing tax complexity is not the work of bureaucrats but of politicians. Over the last 15 years, state legislators have increasingly used the tax code as a vehicle to promote their social-policy goals and to reward taxpayers who engage in approved behaviors. After implementing an historic tax cut, Gov. George Pataki made a few of his own dubious contributions to the lengthening list of state tax credits.
Tax-code complexity has also become a stealthy way to impose significant tax hikes. The most pernicious and costly complication in the state income tax is the supplemental tax or “benefit-recapture” provision, first adopted under then-Gov. Mario Cuomo back in 1991. It effectively converts the table of graduated tax rates into a flat tax for the now-growing number of households with adjusted gross incomes between $100,000 and $150,000.
This quirk in the code costs each affected household up to $794 – exceeding the added burden imposed on many of the same families by the more notorious federal Alternative Minimum Tax (AMT).
Gov. Spitzer recently jumped aboard the crowded bandwagon to reform the AMT; he should also turn his attention to cleaning up the mess that is the state income tax code. As it now stands, New York’s income tax increasingly violates basic tax policy tenets of fairness, simplicity and transparency.
Only one of the various tax credits merits preserving: The state Earned Income Credit is a valuable and effective wage subsidy for the working poor. All the other credits should be repealed with the goal of broadening the tax base and lowering marginal tax rates as much as possible.
By improving incentives to live, work and invest in the Empire State, across-the-board tax cuts would yield more lasting economic benefits for all New Yorkers in the long run.
It’s bad enough that New Yorkers are perennially among the most heavily taxed people in the country. Forcing them to read more directions and fill out more forms in the (often vain) hope of reducing their state tax bills simply adds insult to injury.
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