Dear Chicken Little, the Sky Isn’t Falling… But Wages, GDP Growth, and Job Creation Might Be Rising | U.S. Chamber of Commerce
Nov 06, 2017 - 11:15am

Dear Chicken Little, the Sky Isn’t Falling… But Wages, GDP Growth, and Job Creation Might Be Rising


Chief Tax Counsel
Vice President, Tax Policy

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New York Governor Andrew Cuomo (D) in the lobby of Trump Tower in New York City.
New York Governor Andrew Cuomo (D) in the lobby of Trump Tower in New York City.

Last week, when the House released their long anticipated tax reform legislation, the “Tax Cuts and Jobs Act,” New York Governor Andrew Cuomo (D) quickly declared, “By eliminating or rolling back state and local tax deductibility, Washington is sending a death blow to New York’s middle-class families and our economy.”

A death blow. Wow.

While the legislation doesn’t completely eliminate the state and local tax deduction, it would limit it to a deduction for property taxes up to $10,000 per year. So let’s examine the impact of this purported “death blow” to New York.

Over the weekend, Crain’s New York did just that, in an article titled, “Reports of NY's death from tax reform are greatly exaggerated.” Using statistics recently published by the state comptroller, the article notes, “New Yorkers deduct $51.7 billion in state and local taxes on their federal income tax return, and the average deduction per taxpayer ties California's as the largest in the nation,” but, and this is a big but, those figures carry some heavy caveats:

  • First, only one-third of New Yorkers itemize deductions. In other words, two-thirds of New Yorkers are not impacted by these changes. Further, if the standard deduction increases as anticipated under the proposal, very, very few New Yorkers would be impacted. And this is before consideration of the proposal’s higher child tax credit and the elimination of the alternative minimum tax (AMT)!
  • And who does benefit? The article notes that those who benefit primarily live in New York City and the surrounding suburban counties and are well up on the income scale, earning $100,000 to $200,000. Further, while the deduction provides the greatest benefit for Manhattanites, in other New York City boroughs it pales in significance: “Only 1 in 5 take advantage of it in the Bronx and only 1 in 3 in Brooklyn and in Queens—matching the statewide average.” And, again, that’s without accounting for the hike in the standard deduction.
  • Finally, noting the allowed deduction for property taxes, the article finds that while 90% of the value comes from itemized deductions in Manhattan, in upstate, roughly two-thirds comes from property taxes and concludes, “Voters there will feel little pain.”

Consider, too, a bit more context. The reduction in the state and local tax deduction is part of a larger tax reform plan, including the higher standard deduction as noted, as well as a significantly higher child tax credit and lower tax rates especially for the middle class. Since when is a middle class tax cut a death blow?

Turning to the politics of this state and local tax deduction proposal, the article notes that no Republicans represent Manhattan and that six Republicans hold upstate seats, all of whom could support this proposal given that it doesn’t impact their constituents, but does acknowledge that some representing Staten Island and Long Island may face more pressure.

However, even for those members of Congress, something bigger should be focused on: the overall impact of this proposal on the economy. After all, myopically focusing on one provision is not the way to determine the impact of this legislation.

The nonpartisan Tax Foundation recently examined the proposal and concluded it would:

  • Drive GDP 3.9% higher over the long term
  • Result in 3.1% higher wages, and
  • Add almost 1 million jobs.

And what does that mean for New York, specifically? We again turn to the Tax Foundation, which concludes New York could see more than 63,000 new jobs and an estimated gain in after-tax income of $2,703 for middle-income families over 10 years.

Governor Cuomo and many of his best friends in Washington have argued for years the rich should pay more tax. If tax reform passes, congressional Republicans may just oblige them, at least with respect to those living in Manhattan and similar high tax jurisdictions. Charity begins at home, they say, right Governor? 

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About the Author

About the Author

Chief Tax Counsel
Vice President, Tax Policy

Caroline L. Harris is vice president, tax policy, and chief tax policy counsel at the U.S. Chamber of Commerce.

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