A report by Gov. Andrew Cuomo’s tax department lists ways that New Yorkers could get around the loss of some of their state and local tax deductions under the new law. But all of them come with complications.
When the federal tax overhaul law was signed by President Donald Trump in December, Americans lost their ability to deduct much of their state and local taxes from their federal tax forms. As Cuomo has said repeatedly, the loss of what are known as the SALT deductions harms taxpayers the most in relatively high-tax states like New York.
Cuomo said in his budget presentation on Tuesday that it’s “complicated” to change New York’s tax code to try to make up for the loss, but it has to be explored.
“Washington hit a button and launched an economic missile, and it said ‘New York’ on it, and it's heading our way,” Cuomo said. “You know what my recommendation is? Get out of the way before it lands. They want to shoot at our tax code the way it was? We change the tax code.”
The first option detailed in the report is to substitute charitable donations – which are still deductible from the federal income tax – for a portion of the state income tax. It proposes setting up several state-operated charitable funds, which would distribute the money to things like public education, health care and helping the homeless.
Local governments would be authorized to set up their own charitable funds.
Taxpayers would receive a credit for the donations and use them to offset their tax payments.
Cuomo admitted that a charitable donation system could not make up for all of the money a taxpayer might lose.
“The tax credit would probably not be dollar for dollar,” Cuomo said. “You wouldn’t actually get every dollar back on your taxes.”
Another proposal would switch all or part of the state income tax for a payroll tax. The worker’s paycheck would be reduced by an amount equal to what they owe on the state income tax. The employer would pay the tax instead, in the form of a payroll tax, which the company could then deduct from its annual taxes.
The report offers several scenarios on how to carry that out, including an option to limit the payroll tax option to the state’s highest earners – those making above $200,000 a year – who would be most affected by the loss of the SALT deductions. The report also suggests creating an entirely new tax classification for businesses, known as a class A business, with new rules to get around the loss of the deductions.
The governor’s budget director, Robert Mujica, said there could even be a “hybrid” of the two systems.