Governor Andrew Cuomo has railed and railed against the federal tax overhaul that took effect this month. It’s an “all-out direct attack on New York state’s economic future,” he said during his State of the State address recently.
Cuomo’s heavily criticized the law’s $10,000 cap on the amount of state income tax and local property tax payments taxpayers can deduct if they itemize their federal returns. And Cuomo says New Yorkers will have to shoulder a bigger tax burden because of that cap.
So Cuomo’s floating an idea to game the new law. The state could overhaul its tax code to reduce reliance on personal income taxes and instead adopt a statewide payroll tax system. He tossed the idea out during his State of the State and could include more details in his budget proposal, which he was set to release Tuesday afternoon.
Any new payroll tax would be paid by businesses and would, as the name implies, be based on the amount of employers’ payrolls; Cuomo left unaddressed whether the employers would be able to deduct any of that obligation from employee paychecks.
The governor is exploring a switch from income to payroll taxes because businesses can deduct those payments from their federal returns without worrying about a cap. Lawmakers in California and New Jersey have floated similar ideas.
“As Washington has shot an arrow aimed at New York’s economic heart, the best plan is to get out of the way before it hits,” Cuomo said during his speech.
But Cuomo’s idea has since been met with caution and even questions about its plausibility. Spokepersons for Republican Senators Joe Robach and Rich Funke, as well as for Democratic Assembly member Harry Bronson, said they want to see details, and they’ll look to see if Cuomo includes any in his budget.
“I think it’s feasible and it’s worthy of review,” says Ron Deutsch, executive director of the Fiscal Policy Institute, a labor-aligned think tank. “That’s what we’re doing right now.
Deutsch says he commends the governor for trying to creatively address a problem caused by the new tax laws, but his organization wants to make sure any plan doesn’t hurt lower-income workers. It also wants to make sure the state would have adequate funds to support critical programs, he says.
Deutsch and E.J. McMahon, a tax expert at the conservative Empire Center think tank, both point out that the state’s income tax is progressive – people pay different rates at different income levels – but payroll tax rates are flat.
One way to come at the problem, and keep a progressive tax system in New York, would be to set a base payroll tax and then have an income tax for earnings over a certain amount, Deutsch says.
McMahon is warier. Any attempt to replace the personal income tax with a payroll tax “would be fraught with mind-bending complications and virtually impossible to implement,” he wrote in a recent blog post.
The only way to create a payroll tax system that’s roughly as progressive as the income tax would be to set rates for different employees that vary by things such as family size or marital status, he writes.
“Businesses (not to mention the state’s own tax collectors) would no doubt find this added administrative burden intolerable,” McMahon writes. “It’s difficult to imagine any state would get far trying to impose such a system.”
This article appears in Jan 17-23, 2018.
Neither Cuomo nor Moule explain how this proposal would work. Are the payroll taxes going to be tailored for each individual taxpayer, so that two of us with identical income but different filing status and property taxes have our companies pay different amounts?
And then how does the company come out even? Do they get to reduce the salary by an amount equal to the excise tax. Any other way leads the company to getting stuck. Of course, maybe Cuomo is looking at this as a sneaky way to increase taxes.
Luxembourg: the governor hasn’t offered a specific proposal yet, though some other folks have floated the same scenario you did. Businesses are able to deduct payroll tax payments from their state and federal taxes.
The state Department of Taxation and Finance just released a report yesterday that outlines some of the forms these tax reforms could take, it’s available here: https://www.tax.ny.gov/research/stats/stat…
In oversimplified terms, the state’s looking at some sort of progressive payroll tax or a flat payroll tax coupled with some sort of scaled back income tax . And there’s lots of talk in the report about credits for workers. Cuomo’s budget director has also been saying that the swap could be voluntary for businesses.
But I reiterate, the governor hasn’t made any specific proposal yet, just a general idea of replacing the income tax with a payroll tax, at least to some extent.
The stated purpose behind taxing tax dollars paid to state and local govts is to make the code more fair – we supposedly get a break on our federal taxes compared to residents of low or no state-tax regions.
I say the Governor should propose legislation that would limit how much more in Federally funded services an individual state can get over what they pay in, to no more than a few cents on the dollar. Since NY pays far more in than it gets back we’d either get our Federal taxes lowered or benefit from more Federal programs employing people and buying goods/services in NY.
Its only fair after all.
If its good for the goose its good for the gander – he should have called out the crooks who wrote this legislation when it was first proposed, and in the most volatile of language. There is no good fix for this now other than a repeal of that part of the legislation.
An added payroll tax will be impossible to tailor in the same manner as an income tax. He and Gillibrand and Schumer, and all of our House members, Dem and Republican alike should unite to complain loud and long about this, even to the point of uniting with other states that have higher local/state taxes (all of whom send more to DC than they get back) and scuttling the emergency spending package if possible. Who are these folks representing?
There are some legitimate reasons for the state to be looking at the federal tax changes and considering the implications to the state. Mainly, it is because NYS, and many other states, use the federal tax filing as their starting point. Two quick examples. The state uses the federal itemized amounts as the starting point, and then reduces the state amount by the state income tax. With the federal tax deduction now limited to $10k, this means that the state itemized amount would be reduced to that, and then they would have to adjust for the state income tax portion. Also, the state requires you to use the standard deduction for state purposes if you use it for federal taxes. With more people taking standard, this would mean more would take it for state as well. Both of these changes, if NYS did nothing to change the state law, would increase state income taxes for some people. Some other changes would reduce revenue going to NYS.
The part about converting peoples state taxes into contributions is just nonsense though. Tax fraud is still tax fraud.