Federal proposal rubs SALT in wound as NY subsidizes other states

Recent statements by federal officials, including Treasury Secretary Mnuchin and House Speaker Ryan, have advocated elimination of the federal tax deduction for state and local taxes (SALT) by claiming that so-called “high-tax” states like New York, New Jersey and California are being subsidized by “low-tax” states like Montana, Alabama and Iowa.

The notion that states like New York are being subsidized is simply incorrect. Since late Sen. Daniel Patrick Moynihan first began issuing his pioneering annual survey of the New York state-federal “balance of payments” in 1977, every analysis has consistently shown that New York state provides an enormous subsidy to the federal government. The most recent report from the Rockefeller Institute of Government showed that in 2016, New Yorkers paid fully $40.9 billion more in federal taxes than they got back in federal payments and spending in the state — just 84 cents back for every dollar we sent to Washington. Meanwhile, states like New Mexico, West Virginia and Mississippi receive far more in federal spending than they pay in federal taxes.

Even with the full SALT deduction, New York taxpayers bear a heavy national burden. For example, in 2015, the 1.5 million tax filers in suburban Long Island paid more in federal income taxes than the 2.8 million tax filers in the entire state of Wisconsin, even though Wisconsin residents reported 20 percent more in total income.

Suggesting that the current SALT deduction is unfair to those states that now receive MORE from Washington than they send makes no sense. Indeed, the tax payments we export to Washington that are used for programs and services in other states actually help them keep their local taxes low, at OUR expense. Any limitation on the SALT deduction will only make New York state’s subsidy WORSE: New York taxpayers will be forced to give even more to Washington, and our “balance of payments” will just grow more negative in comparison to other states.

The so-called “compromises” that are being discussed — like putting an income cap on those who may claim the deduction — would have a damaging impact on New York’s finances, as well as on individual taxpayers and homeowners in every county across the state and effectively increase the cost of funding government services.

While an income cap might seem to impact only the most affluent taxpayers, we need to recognize that a startling 42 percent of the state’s income tax revenue comes from just the top 1 percent of New York state taxpayers. Any provision that hits them disproportionately and increases their costs of residing in New York state will encourage high earners, and high-wage employers, to relocate activities to lower-cost states, resulting in an adverse impact on the state’s economy and budget. Reduced state tax revenues will in turn provide fewer funds for local school boards and local governments (counties and cities), which will need to fund their essential services by increasing already-too-high property taxes. So even those upstate counties that don’t appear to be affected by an income cap on SALT will inevitably be hurt.

It is a basic principle that our federal system should not tax funds already paid to the states. That’s why the SALT deduction has been integral to the federal income tax law for over 150 years, going back to President Lincoln and the Civil War. Congressional members who agree to a compromise of the SALT deduction now need to recognize that it will only be the beginning. Those who oppose the deduction will mount continuing efforts to keep chipping away until the entire deduction has been eliminated. Any erosion in this principle will not only hurt our state’s budget, but also lead to further damage. The growing costs will be passed on to local property taxpayers, whether they directly benefit from the SALT deduction or not.

We need our representatives in Congress to rebut the misconception that low-tax states are subsidizing US and to protect New York against losing any more of our tax dollars to support THEM.

Heather C. Briccetti Esq. is president and chief executive officer of the Business Council of New York State Inc., and Robert Duffy is president and CEO of the Greater Rochester Chamber of Commerce.

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