Bush Plan Could Imperil Tax Write-Off for New York
As the Bush administration looks to revamp the tax code, New York officials say they are particularly worried about one idea being considered: eliminating the federal deduction for state and local taxes.
If the president pursues this plan, New York State would lose about $37 billion per year in federal tax deductions, more than almost any other state, according to Internal Revenue Service data. The change would affect about 3.2 million households in New York, three-quarters of which are middle- and low-income, tax records indicate.
"This change would be one of the worst things for New York to came out of Washington in a long time," said Senator Charles E. Schumer. "But if they take this route they can expect a serious fight."
With a 7.7 percent maximum state income tax rate, the second-highest in the country behind California's 9.3 percent, New York would be especially affected because its residents use those taxes to take large federal deductions. About 38 percent of households in New York file for some sort of federal deduction of state and local taxes.
New York City residents, who also pay city income taxes, would be especially hard hit as they could expect an 11 percent increase in the amount they pay the I.R.S., or an increase of about $3.4 billion, said Ronnie Lowenstein, director of the city's Independent Budget Office.
Beyond New York, eliminating the federal deduction for state and local taxes would also affect residents in New Jersey and Connecticut. Among the state and local taxes that could no longer be claimed as a deduction would be property taxes, which are particularly high in the New York City region.
there's your answer, IJ Reilly.Tax experts say that the reason for such a change would be to offset the cost of certain tax cuts that the White House hopes to make in areas like savings and investment.
Max B. Sawicky, an economist with the Economic Policy Institute, said that eliminating state and local deductions would also enable the administration to adjust the alternative minimum tax, which was created in 1969 to ensure that the wealthy are not able to avoid paying income taxes by taking large deductions. Since this tax is not indexed for inflation, it has increasingly engulfed larger numbers of people. The administration wants to either eliminate or adjust the tax so that fewer people have to pay it each year, a change that could benefit New Yorkers, whose average incomes are much higher than in most other states.