By Joe Angelino
Early in November the US House of Representatives voted ‘yes’ to pass the Tax Code reform bill, the first such effort to reform the arduous tax laws of our country in 35 years. The Republican majority, as expected, called this a win for the middle class. Also, just as expected, the Democrats said this is a handout for the wealthy. Somewhere in the middle is usually the truth.
This past week the US Senate passed their version of relief for the US taxpayers. The affirmative vote was along the same lines as the yes vote in the House of Representatives. Soon, both the House and Senate plans will meld together in a process similar to making sausage, and if passed, the President will sign the new bill into law.
Most of the discussions, arguments and debate were along party lines, except for the peculiar divide among New York State Congressional members. This division was caused by SALT; State And Local Taxes. In both the House and Senate versions of tax relief proposals there will be restrictions on the amount of state and local taxes (SALT) and income tax which citizens may deduct from Federal Taxes.
Currently all SALTs are fully deductible which makes living in the higher-taxed areas of New York State a little more tolerable. If tax reform is passed, both House and Senate current versions remove all income tax deductions and limit property tax deductions at $10,000.00.
The New York GOP congressional vote divide was along the “Affluence Line”. Predominantly downstate Congress members, and some upstate, voted against the tax bill. While a few upstate members voted for tax code reform. The difference is the fact that downstate residents pay exorbitant property taxes. Additionally, New York City residents have the added burden of a NY City income tax on top of their state and federal income taxes.
There is a geographic reason for the division of a yes or no votes being the relative prosperity of the congressional district. The Interstate 87 corridor from New York City to Glens Falls, NY is economically booming, while Central New York and the Southern Tier are dying on the vine, hence the yes votes from Congress-members Tenney, Collins, Reed, and Katko, all Republicans.
New Yorkers aren’t alone in this tax quagmire, we are in the company of the other high tax states; New Jersey, California and sometimes mentioned, Illinois. Even if all of the New York congressional members voted no on federal tax reform, it is likely yes votes from the rest of the states will carry any tax relief bill into law.
Reform of federal tax laws will cause concern among local governments and school districts fearing the loss of tax revenue and the double-whammy of needing to reduce local taxes to offset the deduction of SALT on federal taxes. This will certainly get public worker unions in an uproar.
Presently people in Washington, DC are trying to get the House and Senate plans to merge into one which is a complex issue. These negotiations sometimes spin off in weird trajectories trying to appease a particular politician or district, so a guess at the contents of the finished product is nearly impossible. What is predictable is the timing; if you are a betting type, your money should be on the passage of tax reform before the end of the year, particularly around Christmas.
There are sure to be many unintended consequences to rear their ugly head once tax reform is passed. Perhaps the biggest blow to New York taxpayers is whether there is any tinkering to the Affordable Care Act’s Individual Mandate to have health insurance. Because New York requires counties to pay into these costs, any tampering here could be disastrous for our rural county. The tax reform issue is going full steam ahead, so the outcome will be known soon, probably with Christmas wrapping.