By Rick Murphy
President Donald Trump's year-end gift to Americans, a sweeping tax reform package that will, despite naysayers, benefit almost every American taxpayer, is now the law of the land.
But for New York State residents, along with a few other states, there is a big lump of coal in the proverbial Christmas stocking.
click to see advertisement
That's because many New Yorkers will not see the tax breaks others in the country will -- and millions will be worse off than they were in previous years. Many taxpayers in California and New Jersey are in the same boat, and Democrats critical of the new law point out all three states are so-called "blue" states that usually vote for Democrats come election time.
It could have been worse: during a two-week period of review, leaders from the House of Representatives and the US Senate reconciled their versions of the bill, so the original provision thought to be particularly damaging to New Yorkers was tweaked.
A proviso to disallow state and local tax deductions (SALT) was softened. Henceforth, there will be a limit of $10,000 on deductions for state, local, sales, and property taxes as well as a cap on deductible mortgage interest. The bill's proponents maintain an increase in the standard deduction from $6350 to $12,000 will offset those changes. Nevertheless, local Congressman Lee Zeldin, a staunch Trump supporter, voted against the package, joining virtually every politician of note in the state in opposing the new law.
"My goal in this tax reform mission has always been to ensure that the hardworking men and women of Long Island keep more of their paycheck, reduce their cost of living, and are able to save more for retirement," Zeldin said. "Unfortunately, this bill is not the tax relief they were promised."
The new law lowers the tax rate for every individual in the country claiming more than $9325 and for couples who earn at least $18,650. The rate will go from 15 percent to 12 percent for individuals who earn up to $38,700 and from 25 to 22 percent for those who earn between that amount and $82,500.
There are seven rates in all, with the highest, 37 percent, reserved for individuals who earn more than $500,000 and couples earning more than $600,000. The rate for high earners was previously 39.6 percent.
Starting next year, families making between $50,000 and $75,000 will get average tax cuts of $890, according to an analysis by the nonpartisan Tax Policy Center. Families making between $100,000 and $200,000 would get average tax cuts of $2260, while families making more than $1 million would get average tax cuts of nearly $70,000, according to the analysis.
The bill was passed strictly along party lines and despite the tax breaks Americans have been clamoring for, many Democrats took the offensive.
State Assemblyman Fred Thiele said he spent a recent weekend digesting the 500-page bill, and it did not go down easy. "A tax bill like this is seldom all bad or all good. However, there can be no question that for Long Island, the bottom line will be devastating to the local economy."
The local real estate industry will be hurt by the new law, Thiele opined. Please see our real estate section elsewhere in this edition for additional reporting on the matter.
Zeldin's view was more tempered. "I like many aspects of this final agreement, including the expansion of the Medical Expense Deduction, preservation of critical education and student deductions, and strong corporate tax reform that will stimulate job creation and make America more competitive in the global economy," he said.
US Senator Chuck Schumer of New York, a Democrat who opposed the bill, sounded the party line when criticizing the package. "I guess Donald Trump's wealthy friends in New York" would benefit at the expense of middle-class residents, he said.
Critics of the bill are most upset by cuts in the corporate tax rate.
The reduction -- to 21 percent from the current 35 percent -- will begin next year. "Savings from corporate tax cuts will go either to shareholders via dividends and stock buybacks, customers in the form of lower prices and better products, or employees through higher wages," said David Zervos, chief market strategist for Jefferies LLC.
"Reducing the corporate tax rate to 21 percent, for example, is great, but it should not be done on the backs of any hardworking, middle-income taxpayers," Zeldin lamented.
Matthew Townsend, writing for Bloomberg on December 15, said the corporate tax rate decrease would affect different sectors in different ways. "But distribution will vary. Some firms, such as Caterpillar Inc., are saddled with pension liabilities that need to be funded. Other industries, including chip-makers, could use extra cash to cut prices," Townsend said. "Many predict that the bulk of the gains will go to shareholders," Townsend added.
The rationale is that US companies already have plenty of cash and borrowing rates are at historic lows. If Townsend is correct, then the booming stock market, already at an all-time high, will surge even more.
"On balance, this bill remains a geographic redistribution of wealth, taking extra money from a place like New York to pay for deeper tax cuts elsewhere. New York is a net contributor that now will be contributing even more. This bill chooses winners and losers in a way that could have and should have been avoided," Associated Press writers Erik Schelzig, Jonathan Cooper, and Michael Catalini opined on December 17.
Democrats generally assailed the bill, claiming "red" states (those that voted for Trump) benefit from the tax cuts more than the "blue" states. Tennessee Governor Bill Haslam has said he thinks the tax overhaul could encourage more people to move from high-tax states to places like Tennessee, which charges no state income tax. "We think it actually will encourage both investment growth and population growth in Tennessee," Haslam said.
Thiele, Zeldin, and Schumer all lamented the fact that New York contributes more into the federal government than other states. "According to the Rockefeller Institute, each year New York State already sends $48 billion more in taxes to Washington than it gets back in services," Thiele said.
"We are subsidizing other parts of the nation with our hard-earned tax dollars. That subsidy will be even greater by at least another $10-15 billion under this bill. Think about how much lower our own state and local taxes could be if we didn't have to subsidize the so-called 'low tax' states with an inequitable federal tax code," he stated.
Democrats were quick to point to a Congressional Budget Office projection that the tax reform law will add as much as $1.4 trillion to the national debt over the next 10 years.
"Instead of true tax reform, the President and US Congress have crafted a tax bill that gives the bulk of the benefits to the wealthy and campaign donors. Again, the middle class is left behind. It is no accident that the bulk of benefits will accrue to the red states with the blue states picking up the tab. All of our children will pick up the tab for the $1 trillion hole this will create in the federal budget. Those who perpetrated this ill-considered legislation must be held accountable in 2018," Thiele said.
However, since the debt rose over $6 billion during the Obama administration, the partisan criticism rings hollow, Republicans who helped craft the bill counter. Congressman Paul Ryan, for example, said that if the economy is indeed stimulated by the tax cuts, the added revenue will easily offset the projected $1 trillion.
The $1000-per-child tax credit will rise to $2000, with up to $1400 available in IRS refunds for families who owe little or no taxes under the new law.
However, safeguards have been put in place to assure illegal immigrants don't take advantage of the largesse. Parents would have to provide children's Social Security numbers to receive the child credit.
The legislation also deals a major blow to Obamacare – it eliminates the individual mandate that forced people to either buy health insurance or pay a penalty. The move is expected to send health premiums spiraling higher.