December 27, 2004


Bush Plan Could Imperil Tax Write-Off for New York (IAN URBINA, 12/27/04, NY Times)

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. [...]

For some, that is just the point. "If you believe, as I do, that the state and local deductions encourage higher spending in states," said Bruce Bartlett, a domestic policy adviser to Ronald Reagan and a treasury official for the first President Bush, "then abolishing the deduction will help bring this spending down and will also cause people to demand lower taxation."

They didn't vote for him, did they?

Posted by Orrin Judd at December 27, 2004 7:50 AM

Now now,
Some of us voted for him........
Hell...Bush carried where I live (Staten Island).
Writing off that city and state tax is the only thing keeping me from moving to NJ. I already pay Jersey state tax because I work there.

Posted by: bdawg65 at December 27, 2004 8:49 AM

You're not starving the beast if you just let it pick your left pocket instead of your right. Taxes are supposed to hurt. If you find state and local taxes too high, vote to have state local government curtail them. If you cannot get this done, move.

The deduction for state and local taxes is a subtle, sneaky way to to impose taxation withourt representation. It is a federal subsidy to state tax-and-spend kleptocracies on the backs of all Federal taxpayers, including those who hav decided to vote, by ballot and feet, for a lower level of state services.

We need to rationalize taxation: what all this costs should be constantly before our eyes, so that we make political choices grounded in fact. Or so it should be if concepts such as "truth" and "reason" have any significance.

Posted by: Lou Gots at December 27, 2004 9:17 AM

This strikes me as a bargaining chip. Something to raise but then give away for something more important to the President.

A cap might work though. You can only deduct state and local taxes up to say 5 0r 6 percent. This should restrict it only to Dem states like California and NY and not affect most other people. Good way to get 60 votes in the Senate.

Posted by: Bob at December 27, 2004 9:44 AM

People don't get to deduct state sales taxes, do they? Since economists have shown that sales taxes are more efficient than income taxes, there's no reason why the federal government should be encouraging states to have income taxes rather than sales taxes.

Plenty of states get along fine without an income tax.

Posted by: John Thacker at December 27, 2004 10:20 AM

Treating state income taxes as non-deductible income to be taxed again is crazy. The only thing nuttier is the tax on savings and property at death. The social insurance "contributions"/tax, employers share, looks positively benign in comparison. How does that old legal maxim go about fraud vitiating contracts?

Posted by: Tom C., Stamford,Ct. at December 27, 2004 10:40 AM

I'm all for a cap or elimination of the mortgage tax deduction on homes.

As to sales tax, I read that and that was eliminated in 86 or so, I thought.

I remember my mom and dad saving all their receipts in a brown grocery bag.

If Schumer wants to get NYC booming, really booming, then declare the major operations of WWII over and lift rent control.

Posted by: Sandy P at December 27, 2004 4:21 PM

I think Bob's on the right track if it must be done. Otherwise I find it too disruptive and Tom C. makes a major point on double taxation.

Posted by: Genecis at December 27, 2004 9:18 PM

Why is removing the deduction for state and local taxes crazy? It isn't double taxation, it is removing a deduction the federal govt allowed in the past to reduce your federal tax burden. Under this logic every deduction (for education, mortgage insterest, solar powered heaters, etc) is income?

If the tax code is to be streamlined and flattened then deductions like these will have to be eliminated. The offset to eliminating deductions is the lower marginal tax rate.

Posted by: AWW at December 28, 2004 9:35 AM


Define "income". The current debate among some in congress would imply that income is whatever the taxing power says it is inluding the humorous idea that one;s taxes may be taxed as "income". BTW, all "income" not taxed is, according to many, a cost to the federal government. Where does the power to tax one's labor and savings begin to bother you? Should the tax code begin to reflect some honesty somewhere, anywhere, or is it the only unlimited and undefined,open-ended power we have ceeded to the state? The programs of the progressive era, including the income tax, need to be re-thought.

Posted by: Tom C., Stamford, Ct. at December 28, 2004 10:14 AM

Tom - I fully understand that income can be defined many ways, especially by politicians trying to generate tax revenues. My point is that state and local taxes are an expenditure by a person (like sales taxes, clothing, food, etc) and that they are only deductable at the federal level because somewhere in the past the politicians decided it was a good idea to do so.

I am a anti-tax/small govt type and definitely do not think that income not taxed is a cost to the federal govt. I believe it is our money, not the govts.

As for an honest tax code the most honest one there is is a flat tax where everyone pays the same percentage. The current code, with its vast number of deductions designed to benefit certain groups over others, is not honest. One could certainly argue that the state and local tax deduction isn't honest because it benefits high tax state residents (like NY) over low state tax residents (like NH). As I said if you are going to move to more honest, more clear, more equitable tax system some of these deductions are going to have to be removed.

Posted by: AWW at December 28, 2004 12:31 PM

The fastest growing states in the Union, Texas, Florida and Nevada have no state income tax. The states that are shrinking or remaining stagnant in population all have high state income taxes. You would think the Blue Staters, who never tire of telling us how smart they are, would have observed this phenomenon.

Posted by: Bart at December 28, 2004 8:33 PM

It has become an important tenet of liberalism that people don't respond to incentives.

Posted by: David Cohen at December 29, 2004 7:55 PM