An intense debate on tax reform is set to begin in the nation’s capitol and local villages are weighing in with their concerns over what might be a key provision of the bill.
In question is a possible elimination of the state and local tax deduction (SALT), a provision that local lawmakers have claimed would harm homeowners on Long Island.
Markups on the bill have not yet begun, so it is not known whether the SALT deduction will be included in any proposed legislation. If it is, then opposition from within the Republican Party will come from the House of Representatives. Lawmakers from Long Island and New York state have stated their concerns, as have those from New Jersey and California.
Meanwhile, both the Village of Roslyn and Village of East Hills board of trustees have approved a resolution, each with the same wording, opposing the elimination of SALT:
“WHEREAS Congress is giving serious consideration to eliminating the federal income tax deduction for state and local taxes;
WHEREAS this deduction, which has been in place for more than 100 years, is heavily utilized by residents of our community and our state;
WHEREAS New York residents already pay more into the federal treasury than the federal government returns to New York;
WHEREAS the state and local tax deduction is a fundamental principle of federalism and without it our residents would be faced with double taxation as they would be forced to pay federal income taxes on the taxes they pay to state and local governments;
WHEREAS this federal cost shift onto local governments would place extreme pressure on municipal budgets, including diminished revenue for essential local government investments, including public safety and public infrastructure; and
WHEREAS increased federal taxation and reduced municipal services will harm our local housing market, decrease home values and erode our local tax base,
“NOW THEREFORE BE IT RESOLVED THAT [the Incorporated Villages of Roslyn and East Hills] expresses its strong opposition to any tax reform proposal that would eliminate the State and Local Tax (SALT) Deduction and urges Representative Thomas Suozzi and Senators Charles Schumer and Kristen Gillibrand to join us in publicly opposing any such proposal.”
In addition to Roslyn and East Hills, both the villages of Floral Park and Great Neck Plaza have also passed resolutions opposition any SALT elimination. Support for the SALT deduction comes from the majority of Republican Party caucus members in both the U.S. Senate and House of Representatives, including Speaker Paul Ryan (R-WI). In a recent speech to the conservative Heritage Foundation, Ryan claimed that the deduction “has forced the rest of the country to prop up their [New York, New Jersey and California] high taxes and reckless spending.”
“States that got their act together are paying for states that didn’t,” Ryan said in his talk, adding that the rest of the country is “propping up profligate, big-government states.”
In an interview on the cable station CNBC, Treasury Secretary Steve Mnuchin also expressed support for SALT.
“The idea is [that] we don’t want this to hurt New York and California and New Jersey and Connecticut and Illinois too much,” Mnuchin said. “On the other hand, we can’t have the federal government continue to subsidize the states and that’s a major loophole we’re trying to close in simplifying taxes.”
Two members of the Long Island delegation, Rep. Thomas Suozzi (D-Glen Cove) and Rep. Peter King (R-Seaford), penned an opinion piece in a local paper expressing their support for tax reform that would create jobs. Citing research by the Long Island Institute, the two also maintained that eliminating the deduction would cost Long Island taxpayers “up to $2.5 billion” per year. As with other lawmakers, the two also noted that New York, of all the states in the union, is the largest net donor to the federal government, sending $48 billion more to Washington than it receives from the capitol city, a number that “helps subsidize other states through federal programs.”
Also from New York, Rep. Chris Collins (R-Schenectady), an early supporter of President Donald Trump’s successful 2016 campaign, said that New York and other similar states will need “accommodations” to go along with a bill that does include the deduction, but with some compromises, including extending the deduction only for homeowners with a yearly income of more than $400,000.
As noted, whether the SALT elimination is even included in such a bill is still up in the air. Another published report has claimed that President Trump may yet keep the SALT deduction in place. The report cited the president’s concerns that it might hurt middle-class taxpayers.
The Washington-based Tax Policy Center has estimated that eliminating the SALT deduction would cause tax revenues to increase by $1.3 trillion over 10 years. If the deduction is kept in place, the bill’s authors would have to find savings elsewhere.
The last time the SALT deduction was in the news was over 30 years ago, when President Ronald Reagan submitted his own tax reform plan. That legislation eventually was approved, but the deduction remained intact. When the bill was introduced in the spring of 1985, both then-Gov. Mario Cuomo and then-Sen. Alfonse D’Amato both signaled their disagreement in arguments similar to Suozzi’s and King’s. D’Amato dramatized his opposition by staging a mock-Boston Tea Party style demonstration by the East River.