New York residents stand to lose more than $72 billion in reported deductions for income and property taxes if proposals to change the federal tax code are implemented, according to a report issued today by State Comptroller Thomas P. DiNapoli.
"New Yorkers lose valuable deductions under the proposed changes to the federal tax code. Changes to the standard deduction and personal exemptions could result in higher tax bills for some New Yorkers and only modest savings for others," said DiNapoli. "Washington should proceed with caution, because these and other changes have far reaching implications that not only hit the bottom line for taxpayers, but could affect state and local finances in ways that are hard to predict."
On Sept. 27, 2017, Congressional Republican leaders and the Trump Administration released the "Unified Framework for Fixing Our Broken Tax Code." The framework proposes to consolidate the number of tax brackets, but doesn't specify the income levels at which such brackets would apply. The framework also calls for eliminating "most" itemized deductions, while retaining those for home mortgage interest and charitable deductions.
Among the deductions the administration has targeted are those for state and local taxes, an issue of particular significance in New York. New Yorkers reported more than $72 billion in such federal deductions in 2015, including $51.7 billion for income taxes and $20.9 billion for property taxes, 13.5 percent of all state and local tax deductions reported nationwide in 2015.
Taxpayers in certain downstate counties reported high average deductions in this category, including New York County at $60,384, Westchester County at $34,345 and Nassau County at $23,586. In a majority of the counties in New York, taxpayers claiming state and local tax deductions reported more than $10,000 in such deductions. Comparatively larger average amounts included $18,492 in Saratoga County, $15,870 in Albany County, $15,551 in Columbia County and $14,783 in Tompkins County
State and local income taxes and real estate taxes represent the categories with the highest levels of deductions that New Yorkers reported on their federal income taxes. Meanwhile, more than one in five taxpayers in the state reported mortgage interest deductions, averaging $8,727, while 29 percent reported charitable deductions averaging $6,894. The report includes county level figures on New Yorkers' federal itemized deductions.
The potential revisions to the tax code would consolidate the current standard deduction and personal exemptions into a new, higher standard deduction. However, the impact of these changes is far smaller than the "nearly doubling" of the standard deduction as portrayed in the framework. These changes are further clouded by the framework's elimination of personal exemptions for dependents. For some taxpayers, these changes could result in additional income tax liability.
In 2015, New York taxpayers claimed more than five million dependent exemptions. Under current law, a married couple with two children who claim the standard deduction have a total combined deduction of $28,900. With the proposed change to the standard deduction and the elimination of the personal exemption for dependents, their deduction would decrease by $4,900, a reduction of 17 percent.
DiNapoli's report also showed the framework proposal would:
- Set the corporate income tax rate at 20 percent, and eliminate the corporate AMT. Corporations now are subject to different tax rates, depending on their income. Current corporate tax rates are 15, 25, 34, and 35 percent. For those business owners who pay taxes on their firm's income taxes through the personal income tax, a new single rate could result in a significant increase in taxes.
- Reduce the tax rate on foreign profits of multi-national corporations that are headquartered in the United States; and
- Eliminate the Alternative Minimum Tax (AMT) and the federal estate tax. Both of these taxes currently have bigger impacts in New York than in most other states. In 2015, New York generated 15.6 percent of AMT payments and 9.4 percent of federal estate tax payments nationwide. While taxpayers at all income levels are subject to the AMT, it primarily impacts those with incomes ranging from $200,000 to $500,000.
Some of the proposals included in the framework could affect New York tax liability, since provisions in New York's Tax Law are tied to federal provisions. These include the changes to certain itemized deductions, the child tax credit and depreciation.
Without legislative changes to the State Tax Law, changes at the federal level could either increase or decrease the state tax burden on New York's taxpayers, with commensurate impacts on state revenues. Similar impacts could occur with regard to the New York City and Yonkers income taxes.
To read the full report, "The Proposed Framework for Federal Tax Changes: A New York Perspective," visit: http://osc.state.ny.us/reports/budget/2017/federal-tax-framework.pdf
DiNapoli recently released a report analyzing federal spending in New York and federal taxes generated in the state. That report revealed New York residents and businesses paid an estimated $40.9 billion more in federal taxes than the state received in federal spending during the 2016 federal fiscal year. New York's tax payments averaged $12,914 per capita, nearly 30 percent higher than the national average.
For access to state and local government spending, public authority financial data and information on 140,000 state contracts, visit Open Book New York. The easy-to-use website was created by DiNapoli to promote transparency in government and provide taxpayers with better access to financial data.