A Bill Comes Due: New York Faces Massive Tax Shortfall With Elimination Of Federal Deduction

One of the aspects of the new federal tax plan that made sense to me was the elimination of much of the deduction for state and local taxes. While the move cost those of us in higher tax states, it finally forced states to stop using the federal tax laws to effectively subsidize its high tax policies. Now that bill has come due in New York where taxpayers will no longer be able to write off their high state taxes. The result is not only a shortfall of $2.8 billion but droves of wealthy taxpayers leaving the state.

There has long been a valid concern over states like New York approving higher and higher taxes while assuring voters that they will not really pay the full cost since they can write it off on their federal tax bill. Taxpayers have complained that they are effectively subsidizing taxpayers in states like New York and California even though they often make considerably less.  I have come to support the approach for a different reason. It forces local politicians to bear the true costs of tax hikes since they can no longer dismiss objections by saying that their increases will simply be recovered as a deduction on federal taxes.  California legislators responded by trying to push legislation to force businesses to give back half of their federal tax savings.

In New York, the legislature is still pushing to add spending to the budget as Gov. Andrew M. Cuomo announced the need to slash the budget. He referred to the reality of the budget as a “heart attack.” If so, it was a heart attack years in the making from an effectively subsidized bloated tax system.

While New York was outraged by the tax change, it will finally have to deal politically with its own tax policies rather than have people in Nebraska effectively help pay for New York programs.

The new tax law caps the deduction at $10,000 for state and local taxes. That will hit the most wealthy taxpayers in states like New York. Cuomo noted that this top one percent also happens to be highly mobile and pay half of the New York’s taxes.

It is an ironic moment. While Democrats routinely complain that the rich are not paying their fare share, this one percent covers half of their taxes. Now they may be leaving. That will require either cuts in the budget (which is already being opposed) or higher taxes on the remaining wealthy. . . which is likely to result in more leaving in a vicious circle.

To his credit, Cuomo acknowledged the problem: “This is the flip side. Tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?”

What you do is adopt a tax system that can be sustained without federal subsidy and to take responsibility for your own budgetary decisions. Cuomo seems to be doing so but he is already facing opposition.

91 thoughts on “A Bill Comes Due: New York Faces Massive Tax Shortfall With Elimination Of Federal Deduction”

  1. To his credit, Cuomo acknowledged the problem: “This is the flip side. Tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?”

    Freeze all hiring of non-essential (99.9%) state employees.

    Cut salaries/benefits of all existing state employees.

    Defer all raises/bonuses for state employees.

    Inventory NYS employees and burn the dead wood.

    Inventory NYS possessions (eg vehicles, electronic gear, etc) and sell off the excess.

    Eliminate all state six-figure tax-free pensions.

    Eliminate all double-dipping of state pensions.

    NYS had roughly 4 billion dollars (2.6% of general fund spending) stashed away in various rainy day accounts in fiscal year 2017.

    NYS had 7 billion dollars remaining in the states general operating fund as of March 2017.

    https://www.osc.state.ny.us/finance/finreports/fcr/2017/implications.htm

    Lies, damn lies and politicians.

    Alas, our intrepid politicians will stand there with sparkly-eyes and their wholly dependent mouths open and hands out looking to stuff their gaping maws at the expense of all productive persons.

    It is amazing that the wholly dependent idiots of the state believe government is/was responsible for the socio-economic miracle that occurred in North America.

    Nice fantasy.

    1. PS NY State Kicking In $1.5 Billion-Plus for Getting Amazon HQ

      Stop gifting corporations billions of dollars in collective tax breaks/subsides

      1. Some of it is just economic illiteracy by Cuomo and the low-rent lawyers who dominate the legislature. Some of it may be the expectation of some payola down the road. The Democratic Party always acts to build patron-client relationships and enact nonsense policies that have PR value only. The newspapers propagate these frauds.

    2. Why earn when governments feel entitled to take more of your earnings? When I go to the shop every morning, I don’t see Obama helping me “to build that,” so why should I do any more than the minimum necessary to pay bills?

  2. TRUMP CARRIED $916 MILLION TAX LOSS FOR YEARS

    In the 11 days since The New York Times published fragments of Donald Trump’s 1995 state tax returns showing a $916 million tax loss– a loss that he likely carried forward to wipe out most or all of his tax liability for years—the Republican presidential contender has chosen to muddy, rather than clarify, his tax situation. For example, at Sunday’s debate, he suggested that Warren Buffett had taken advantage of a similar tax provision, prompting the nation’s third richest man to issue a statement saying he’d owed federal income taxes every year since 1944, when he was 13. And in all those years, Buffett said, he had never used a carry forward.

    Since Trump has neither released his tax returns, nor explained his mega-loss, there have been a lot of theories about its origin. But the most plausible one is that most of it stems from losses sustained by lenders to Trump’s Atlantic City casinos and failed airline (not by Trump personally), that owing to an anomaly of the tax code, he was able to claim on his tax return and benefit from himself. The Internal Revenue Service tried to block taxpayers from getting this tax windfall, but in January 2001, the U.S. Supreme Court ruled by 8 to 1 (in Gitlitz v. Commissioner), that it was up to Congress, not the IRS, to close this unintended loophole. That’s precisely what Congress did, in the Job Creation And Worker Assistance Act of 2002.

    Edited from: “Windfall: The Best Explanation Of Donald Trump’s $916 Million Tax Loss”

    FORBES, 10/12/16
    ……………………………………………………………………………………………………………………………

    Professor Turley forgets that Donald Trump possibly paid no taxes for up to 10 years while carrying this almost billion dollar loss. When asked about this practice at a public forum, Trump pointed to his temple and proclaimed himself ‘smart’. And just to show how ‘smart’ he is, Trump refused to show his recent tax returns!

    Yet this same Donald Trump wants to punish upper-middle class taxpayers in large blue state cities. Cities where upper-middle class life styles require healthy six figure incomes. What’s was good for Donald Trump ain’t good for common executives.

    1. You say punish, others would say force them to take responsibility for their own bills.

  3. As an ex-taxpayer from the State of New York, my advice for the “middle” class is to improvise, adapt, and overcome. Downsize your principal residence and try to reduce general expenses in an effort to keep property and sales taxes as close to the Federal limit of $10K as you possibly can. Don’t forget to anticipate that with the really rich leaving for sunny Florida, Dirtbag, excuse me, Governor Cuomo will raises taxes again. Also, don’t forget New York will still be advertising itself as a sanctuary State, which will attract more of the anointed ones. Oh! And, don’t forget to invest in a really great security system to protect your house, or better yet a high fence or, perish the thought, a wall. Down here in the GST (The Great State of Texas), we’ll leave the lights on for ya. Just don’t vote for the DemonRats when you get here.

    1. De Blasio, Mayor of NYC wants to give free healthcare to illegals while pushing the rich out of the State. There is no better way for uneducated persons to learn that the rich pay most of the taxes then to see what happens when the rich leave. Some of the States are considering a type of “wall” (financial) to prevent their rich from leaving. Likely it will not work and it will stop the rich from moving in.

  4. 2017 ‘TAX REFORM’ WAS WRITTEN AS BIG F U TO BLUE STATES

    The whole idea of withdrawing those deductions was to create chaos in highly urban blue states. To force drastic spending cuts that would reduce those states to third world status. It is a prime example of the mean-spirited nature of Republican policies.

    Professor Turley writes: “While New York was outraged by the tax change, it will finally have to deal politically with its own tax policies rather than have people in Nebraska effectively help pay for New York programs”.

    Nebraska, with only 1.9 million people, has a smaller population than New York City’s borough of Brooklyn, 2.6 million. Cities like New York require vast networks of infrastructure far beyond the needs of Nebraska. New York City’s bridges and tunnels alone compose an extremely vast network.

    Here in Los Angeles, most residents rarely see The Los Angeles River. Said river is largely hidden in concrete storm channels. Yet The Los Angeles River alone requires almost 100 bridges. That’s a huge amount of infrastructure!

    The Chicago River has about 40 movable bridges.

    When Republicans like Professor Turley pretend that Blue States are ‘living beyond their means’, they are absolutely blind to the needs of major metro regions. It’s like saying the needs of New York City should be no different than Omaha’s!

    Again, the entire concept of eliminating that deduction was to literally punish Blue States for voting Democratic. And it’s ironic that Donald Trump, whose real estate empire was largely built on tax subsidies granted by New York City, should turn on his home state. This alone makes Trump the most deplorable of hypocrites!

    1. Peter,

      What a bunch of crap. I live in NY and find it shameful to use other states to pay for our infrastructure. So your logic goes, suck it Nebraska, we built beyond our means, you owe us now. It doesn’t surprise me though that you feel that others should pay for anothers decisions.

      1. Jim, NYC doesn’t need bridges..?? There’s no subway system..??? NYC is no bigger than Omaha..????

        And ‘how’ is Nebraska paying..???? Their taxes are cheap compared to New York’s.

        1. New York is perfectly capable of paying for it’s bridges without a functional cross-subsidy from other states. New York is a comparatively affluent state.

          1. So Tabby you’re saying the needs of New York City are no greater than the needs of Omaha..???

            Anyone with even half a brain can see that huge metro regions have staggering needs in terms of infrastructure. It’s total denial to say that states like New York should get by on red state revenues.

            1. Peter, no one has any ‘needs’ without implicit purposes in mind. People in highly concentrated areas have different consumption patterns than people in less densely settled areas. That doesn’t justify people in densely settled areas shaking down small towns and countryside (whose residents are generally less affluent than metropolitan dwellers).

              Last I calculated it, road maintenance costs in New York were somewhat north of $600 per capita per annum (in circumstances where personal income per capita was north of $40,000 per annum). New York can maintain it’s roads without panhandling Nebraska.

        2. The George Washington Bridge carries over 100 million every year. The cash price to get into NYC is $15 there are discounts. The same occurs for most of the bridges and tunnels coming into NYC. That money more than pays for the bridge over and over again.

          When Nebraska has bridges that gross that much money or gets taxes on astronomically priced homes with additional city income tax and sales tax then they can afford to subsize NYC.

    2. It is raw socialism to expect the whole of society to pay for the few that want to live large.

      1. Gee, why are saying ‘few’…???? Brooklyn alone has more people than the whole state of Nebraska. That doesn’t sound like ‘few’.

        1. Which is irrelevant. Personal income per capita in NYC is above the national mean. They can certainly pay for their own infrastructure.

          1. For every billionaire in New York there are ‘X’ number of poor working people with a host of various needs. You’re not addressing them. New York doesn’t begin and end on the Upper East Side.

            1. New York is an affluent state. It doesn’t need a cross subsidy from Nebraska to manage domestic common provision. This isn’t an esoteric point, Peter, but you keep missing it.

            2. For every billionaire in New York there are ‘X’ number of poor working people with a host of various needs.

              And this is the citizens of Nebraska’s problem exactly how? Do you go to one of your Hollywood neighbors demanding they hand over money to feed the homeless guy you saw on a trip to NYC?

    3. More from Correct-the-Record.

      Any adjustment in tax architecture and tax rates is going to require adjustments by some party. You only avoid those by never altering the tax code. Which is a stance you’d only take if you fancied the tax code were absolutely optimal given the circumstances. Which is a silly position to take.

    4. On the one hand Peter Shill yells and screams about the unfairness of the tax code but when the tax code is made fairer Peter Shill yells and screams. He is an idiot. Disclosure: I am one of those that will pay a lot more in taxes because of the law and I fully agree with the results and the intent.

      Some of us actually worry more about the nation and the families that have a hard time making it.

    5. “That’s a huge amount of infrastructure!”

      A huge amount of infrastructure requires a larger population than smaller cities, but there are alot more people to pay for that infrastructure. In general we should be seeing economies of scale with larger populations and the growth should be controlled internally, not by spreading those costs to other people.

  5. So the people in low tax states no longer subsidize them, and more of the rich are not willing to be Cuomo’s piggy bank. The people who kept voting to live on other people’s money will get their wake up call. Paying for “free” stuff sucks.

    1. No, the deduction continues. It’s just capped. Ideally all deductions, exemptions, and credits would disappear bar perhaps a per-person general exemption or a per-person general credit.

  6. I wounder what Cuomo thinks the flip side of killing babies is. Or will that just be another “Mentos” moment for him.

  7. I’m not sure that I am considered wealthy, but me and the wife have had some serious conversations about moving out of NY. Mainly due to the insane liberals taking over. It sucks too,since I really loved this state my whole life and will be finishing up the restoration of our Victorian house. I was hoping to hang around to enjoy it for a while. Then the question arises, where to move to? South is too hot, most of New England is as bad as NY. Texas would be good but I lived in CA for a bit and really do not want arid climate.

    1. A lot of people with your problem have chosen to move south to a low tax state and warm weather in the winter. They return to NY for the nice time of the year remembering not to overstay the 6 month ((less one day?) limit.

    2. Jim22………only West Texas, high plains and panhandle, are arid in Texas. Far Northeast and Deep East Texas are beautiful, very humid , and have some pretty foliage in autumn…..but nothing like foliage in New York. Maybe South Carolina? They’ve got some terrific conservative politicians, great food, pretty foliage, nice people. Wm F. Buckley’s family had a home there.
      I don’t envy you. It’s sickening what the Dems are doing to NY and California…..just unforgivable.
      Best to you.

      1. Cindy,

        Thanks for the info. Yes it does suck. If you could see the amount of sweat and love I have put into my house two make it beautiful again (I’m sure the taxman is salivating to reassess us) you would understand my sadness in leaving it. It really does feel like I’m losing my country.

        When your governor can make this statement:
        “You’re seeing that play out in New York. … The Republican party candidates are running against the SAFE Act – it was voted for by moderate Republicans who run the Senate! Their problem is not me and the Democrats; their problem is themselves. Who are they? Are they these extreme conservatives who are right-to-life, pro-assault-weapon, anti-gay? Is that who they are? Because if that’s who they are and they’re the extreme conservatives, they have no place in the state of New York, because that’s not who New Yorkers are.”
        And still win reelection by 60%, all is lost.

        It reminds me a lot of CA. I was amazed how conservative the state was once you got out of the urban areas.

    3. Besides, why would anyone want to buy your beautiful Victorian in such a tax climate?

      1. Latest news I have read is that prices in Manhattan are falling. That means a lot less taxes and a downward spiral. This has happened before under Progressive mayors, taxes and ideas that want to soak the rich. That means the middle class is going to be paying a lot more in taxes due to Democratic control of the NYC and the State.

        Becka, you made some statements earlier. What you need to do is read a good book on economics and then look at the history of NYC.

    4. If it gets bad enough, will there even eventually be a buyer for your restored Victorian house?
      If taxes get too high, and the state is viewed as unfriendly to the middle class, people will not just emigrate, they won’t immigrate either.

  8. (music to tune of Go Comets, Go Team the song of Ferguson Junior High)
    Go Yorkies Go Team
    Strive for cheaper fuel!
    Leave the state and drive team drive…
    Drive til out of sight, sight , sight, sight!

    Quit paying taxes…
    Drive to State Distain!
    Bring all your team to victory…
    Victory will be tonight!

  9. “it finally forced states to stop using the federal tax laws to effectively subsidize its high tax policies. “

    What could be wrong with such a bill? It should have happened decades ago. When the taxes are reduced some of the wealthy will return and others won’t leave.

    Many of the rich will be paying more of their share by not having the poor subsidize their excessive state’s spending.

    1. It’s a reasonable wager the revenue losses are derived from people switching their formal residence to their second home. It’s common among the well-to-do where I grew up to have a condo in Sarasota.

      The appropriate tax haul is that which pays the bills. The problem in New York, as everywhere else, is maladministration of public funds (to please public employee unions, natch) and an inability among politicians to differentiate between the state’s proper functions and functions properly devolved or left to private parties (to please the education and social work lobby). Example: Peter Shill telling us all we need a national program of subsidized daycare.

      1. DSS, of course what you say is correct. I spend some time in NYC and even have a home in Manhattan. Anyone want to guess why my residency has been in another state for decades?

  10. Tax Strategies Templeton style

    Sir John Templeton was an American-born British investor, banker, fund manager, and philanthropist

    Investment philosophy

    Templeton attributed much of his success to his ability to maintain an elevated mood, avoid anxiety and stay disciplined. Uninterested in consumerism, he drove his own car, never flew first class and lived year-round in the Bahamas.

    Templeton renounced his US citizenship in 1964, allowing him to channel an additional $100 million that he would have paid in US income taxes when he sold his international investment fund, toward philanthropy. He held dual naturalized Bahamian and British citizenship.

  11. Downstate New York is quite affluent (all things considered) and the Giuliani-Bloomberg program dramatically improved the quality of life. Upstate is mildly under par as far as personal income per capita, but has many advantages. However, the legislature is dysfunctional in its organization and it’s also filled with hacks who have no conception of what is and what is not a public function and what is and what is not sufficient expenditure. They are also quite incapable of allowing local government officialdom to make their own decisions. Local councils are financially dependent on state subsidies, all of which come with strings attached. Even the most informed voter hasn’t a clue as to which body of elected officials is truly responsible for which policy. And, of course, the spending trajectory invariably matches the revenue trajectory. The broad public in New York are willing to put up with this, so it never changes.

  12. Your view of the elimination of this deduction is so Trumpian. Those deductions were beneficial for the middle class. The mega rich just pay their lobbyists to get their own specially crafted tax deductions and taxpayer provided subsidies.

    1. Justice Holmes. One flaw in blindly repeating liberal dogma as you do, is that you are oblivious to facts. NY’s income tax rate is 6.57%. In order to have a $10,000 NY state income tax bill, an NY taxpayer would have to have $152,000 in taxable income (after all the other, usual deductions.) So, your failed, flawed position that the limit on state and local income tax deduction impacts the middle class is a really defense of those who make $152,000 and above. “Middle class”, huh? Someone making $200,000 for example “loses” $3,100 in federal income tax deduction. Poor, poor middle class worker.

      Stupid reply, Holmes.

    2. “The mega rich just pay their lobbyists to get their own specially crafted tax deductions and taxpayer provided subsidies.”

      Using the logic of Holmes, if such new subsidies aren’t created this deduction is a wild success.

      The rich will leave the state. Where do you think the taxes will come from? The poor?

      The solution for the state is not to tax more but to tax less and think about where the taxpayer’s money is going.

    1. “My feet may just head to Canada…”

      Canada , a great nation, is tougher than the US. You may want to go there but they have stiff qualifications for American citizens. The US is much easier. Cross the Rio Grande and you are in. Isn’t that funny that it is difficult for US citizens to move to Canada yet a citizen from Honduras that crosses the border into the US illegally ends up staying here and potentially voting?

        1. Not sure what you mean Becka. However, if Canada would like our 20 million illegals Canada can have them. I don’t think they will take them, but the leftists in the US will stop a border wall from being built to help prevent entry of illegals while those illegals take jobs from Americans. How do you feel that Canada might not permit you to remain there? Are Candians bad people for controlling their borders? Our taxes are being used to support illegals, but one of the reasons Canada may not want you is so that their taxes don’t have to support you or their job oppportunities are left to Canadians.

          It’s funny how you have one step over the border into Canada because of US behavior yet you don’t have the slightest idea of Canada’s behavior.

      1. Free healthcare is probably one of the reasons they won’t permit Becka legal status as a citizen. However, as a non citizen if she gets ill while in Canada she can return home (or pay) and get her care in the US like so many Canadians do.

    2. Your taxes?

      That’s funny.

      You mean your generational welfare and “Affirmative Action Privilege.”

      Welfare and Affirmative Action – Don’t Leave Home Without It!

  13. Quite amazing that many of these states that are facing shortfalls find money for illegal aliens sanctuary, legal assistance and other “freebies”.

    1. If we don’t, what happens? Without any possible humane way there is a subsequent rise in crime and worse, illness. If we allow masses of people to become ill and homeless then that is the wealth they will spread. I live in a land of slum lords but the loudest battlecry is “NO NEW RULES OR OVERSIGHT!” If we had stronger immigration policy, stronger healthcare, stronger infrastructure oversight….we would not be so vulnerable to the downsides of these ‘incursions’. We are America, we should be stronger than building walls…

      1. “I live in a land of slum lords ”

        Becka, do you know what a slum lord is? Why don’t you tell us.

  14. I would expect AOC to be right there claiming what a righteous tax this is, “sticking it to the bloated rich”. But she will realize that just as in NY, the wealthy are mobile and will move their wealth to a place that does not tax them at 70%. When are socialists going to learn that nothing is free.

    1. When are name callers going to stop having people subsidize corporations who are magnificent at not paying any taxes while siphoning tax dollars through their companies into the hands of a few executives?

    1. Looking at the lamebrains from that region it’s no wonder andnow they are calling wealthy ‘evil.’

      Money is an accdeptable medium, of exchange representing one’s value to work.

      Wealth is money in excess of current need and stored for future need such as layoffs, sickness, daughters wedding or higher education.

      The words are apparentl too difficult for Lizzie Borden Warren and An Ocasional Cortisone who shows no evidence of any education.

      Much less the ethical standards required to use the word ‘evil.’

      1. Given your ability to spell and form complete sentences I question your education……;P

        Who is calling wealth evil? Source please. The only evil associated with wealth is how you get it and what you do with it. It is evil if getting means hurting others. There is a lot of evil wealth out there….but not nearly as much as good decent wealth. Taking wealth from others or disallowing others to accumulate their own wealth by trickery, deceit, violence, usary and theft…now THAT is evil.

        1. “disallowing others to accumulate their own wealth by trickery, deceit, violence, usary and theft…now THAT is evil.”

          Becka most of those things you mention are illegal. People go to jail for things of that nature.

          Michael Cohen is basically going to jail for Taxi Medallion fraud. You probably create a lot of non-cries in your head, but if you actually lay them out for scrutiny you will find a lot of those crimes disappear.

Comments are closed.