The federal tax bill adopted last month isn’t the only threat to high-income New Yorkers who will lose the deductibility of all their state and local taxes.
If the state Legislature and Gov. Andrew Cuomo don’t act, some New Yorkers would be on the hook for another $1.5 billion in tax hikes, according to state records and experts.
Cuomo has called the federal tax law “a missile aimed at the heart of New York, and he’s got his own missile aimed at the same people,” E.J. McMahon, founder of the Empire Center, a fiscally conservative think tank in Albany, said.
A tax department report last week, in fact, noted how some New York taxpayers would face a series of income-tax increases because New York’s system would be tied to the new federal system that limits state and local tax deductions to $10,000 a year.
“New York State could consider decoupling from the new federal law, effectively restoring current deductibility at the state level,” the tax department report said.
The tax department report showed several tax hikes on New Yorkers, particularly higher income earners, if the state doesn’t act as part of its budget for the fiscal year that begins April 1.
For one, about five million single tax filers could incur about $840 million because of changes to the standard deduction — which is nearly doubling under the federal tax law.
New Yorkers, especially those with high property taxes, won’t be able to deduct all of their state and local taxes on their federal income taxes each year.
The impact also would affect state taxes if New York doesn’t change its laws — to the tune of about $400 million on state returns for those who continue to itemize.
So it would be a tax windfall for the state, but a hit to homeowners.
State officials, however, cautioned that they are not looking to use the federal tax law as a backdoor way to hit New Yorkers with higher taxes.
Also, several lawmakers have introduced bills so the federal tax plan doesn’t negatively impact New Yorkers’ state deductions.
On Tuesday, the Republican-led Senate passed a bill to decouple the state deductions from the federal plan. The Assembly said it too is considering the bill.
“The State Senate today passed a tax bill that will save New York homeowners $1.5 billion by giving them the ability to deduct their property taxes on a state level,” Sen. David Carlucci, D-Clarkstown, Rockland County, said in a statement.
Assemblywoman Amy Paulin, D-Scarsdale, also said she plans legislation on the issue.
Morris Peters, a spokesman for the state Budget Division, said the federal law was approved late last month, making it difficult in Cuomo’s budget plan last week to account for all the impacts on New York’s tax laws.
“Rather than attempting to haphazardly address every impact of the bill on New York in less than a month, we appropriately chose to analyze the bill thoroughly and solicit feedback from outside experts,” Peters said in a statement.
Peters suggested some of the issues would be addressed when Cuomo introduces his 30-day amendments to the budget next month.
“The Tax Department’s preliminary report, presented last week, identifies the various impacts of the federal bill, including all the ways it increases taxes on New Yorkers, and lays out options for the state to address these issues within the 30-day amendment window for the Executive Budget,” Peters continued.