On Thursday, Governor Cuomo will detail his proposals to help New Yorkers affected by changes to the federal tax law. But Republicans who rule the State Senate are cool to the ideas, including one that creates a payroll tax instead of a state income tax.
Cuomo’s budget director previewed the plans on Monday, which will be released as part of the 3-day amendments to the governor’s state budget proposal. Robert Mujica says if changes aren’t made to mitigate the cap on state and local taxes income and property deductions, then higher-income New Yorkers will move out of state.
“Even if we only lose a small number of high-income tax payers, that would cripple the state’s revenues,” Mujica said. “And it would lead to large budget deficits, which fund many of the programs that people depend upon.”
He says it would also make the state less competitive and threaten jobs.
The plans include a voluntary payroll tax that employers and their workers could substitute for the state income tax.
Republican Senate Majority Leader John Flanagan remains skeptical though that the proposal could work.
“Payroll tax, that makes my head spin,” Flanagan said. “My visceral reaction is, I think all of my colleagues are opposed to it.”
Flanagan says he’ll wait to see the details of the bills before passing judgement. The plan would reduce a worker’s salary by the amount they pay in income taxes, and convert the money to a payroll tax paid by the employer. The employee’s amount of take home pay would be unchanged. But Flanagan says it would still be a hard sell to workers.
“The mentality of human nature will be ‘I just got my pay cut,’” he said.
Cuomo will also release details on another proposal to create two charitable funds for health and education. Taxpayers could donate to the funds as a substitute for paying a portion of their property taxes, and then receive a charitable donation tax credit on their federal tax forms.
Flanagan questions whether the process could be as straightforward as it sounds.
“It’s not going to be that easy,” Flanagan said.
The Senate Leader also questioned Cuomo’s contention that the federal tax changes will cost the state $14 billion. He says in some parts of the state, including upstate New York, most taxpayers will benefit from the federal tax changes and the new, larger standard deduction.
Assembly Speaker Carl Heastie, a Democrat, says he supports the payroll tax idea and thinks it could work.
“If we do nothing then those citizens of the state who itemize are looking at getting a big hit in their pockets,” Heastie said.
Heastie, who has a master’s degree in business administration and finance, says he has more concerns though about creating a charitable fund that could be substituted for property taxes. He’s unsure whether the IRS would really allow the arrangement. And he says he doesn’t want constituents to end up owing the IRS money, as well as penalties, if the charitable deductions are found to be invalid.
“We want to protect them from that,” Heastie said.
Cuomo has proposed the tax code changes as part of the state budget, but Flanagan says he doubts the tax changes can be worked out by the budget deadline at the end of March.
