Flailing against the tax scam
Many people who pay high property taxes, pay high state income taxes and itemize deductions for any reason are going to see increases in their 2018 tax bills. Even though the standard deduction has been raised to $12,000 for a single person, and $24,000 for a married couple filing jointly, many filers will still lose out, especially in high-tax and high-income states. First, any benefit from the increase in the standard deduction, for many, is either sharply reduced or completely eliminated by the fact that there is no longer a personal exemption. And matters get worse when you consider the impacts of the new tax law on those who pay high property and income taxes—which will include people who own homes in the Upper Delaware Valley region.
There are many homes in The Chapin Estates, for instance, that have yearly tax bills that well exceed $10,000. If the owners of those homes also own another house in New York City or any other location and if they earn high incomes, they are likely not to be very happy with President Donald Trump’s new tax scheme.
Gov. Andrew Cuomo has aggressively attacked the Tax Cuts and Jobs Act (TCJA) as a direct attack by Republicans in red states on Democrats in blue states. It’s certainly easy to believe that the Republican politicians were targeting the state. New York taxpayers send $48 billion more to Washington, DC than the state gets in return, the most of any state in the nation.
At his State of the State Address on January 3, Cuomo said, “Our federal government has hurt our state’s economic position both nationally and internationally. By taxing our state and local taxes, they made us less competitive, and they are helping other states at our expense…. This effectively raises middle class and working families’ property taxes 20 to 25% all across the state. It raises their state income tax 20 to 25% all across the state.”
Cuomo proposed a three-stage strategy to fight the legislation, and the first will be a lawsuit. Cuomo said this is the first double federal taxation in the history of the country, and it violates states’ rights and the equal protection clause of the Constitution.
The second strategy is to begin a “repeal and replace” campaign of the TCJA.
He said his administration is exploring the feasibility of a major shift in tax policy in the state. They’re forming a plan to “restructure the tax code to reduce reliance on our current income tax system, and adopt a statewide payroll tax system; payroll taxes are legal, the federal government has a payroll tax system. We’re also exploring creating additional charitable organizations so that contributions to them would be tax deductible.”
In the case of the suggested payroll tax, it is essentially the same as an income tax, except with an income tax the employee pays the entire amount, and with a payroll tax, the employer pays at least part of the bill.
As to the question of charitable donations, the state could allow taxpayers to make a charitable contribution to the state or municipalities in exchange for a tax credit. Charitable contributions to state governments and municipalities are tax deductible.
New York is, of course, not the only state in this situation. California is a high-tax and high-income state that is also looking for ways to circumvent the $10,000 tax cap. One proposal in the Golden State is to allow filers to be able to donate to the “California Excellence Fund” in exchange for a tax credit of equal value. There are differing opinions about whether the Internal Revenue Service would allow this.
There are at least eight other states with large numbers of residents who have itemized state and local tax deductions who may want to protect against increase federal tax bills for their residents. If all of these states are even partially successful in skirting the tax cap, it may force lawmakers in Washington to revisit the tax question. After all, their legislation is already expected to lose $1.5 trillion over the next decade. Would they really be willing to accept an even higher cost if less revenue is collected?
In New York, the debate about these issues has just begun, and some Republicans are already expressing concern about switching from an income to a payroll tax, so it’s not at all clear that the effort will succeed. But with most pundits saying Cuomo is considering a presidential bid in 2020, a spirited fight against a president and tax legislation that are both under water in the polls must seem like a safe bet.