Keep state taxes deductible
Gov. Andrew Cuomo is absolutely right to oppose President Obama’s plan to end the federal tax deduction for local and state taxes. As a story in Wednesday’s Gazette illustrated, it would be a killer for New York taxpayers.
Granted, the feds need money. But getting it this way would unfairly penalize states with the highest income taxes, and taxpayers in such states (including New York) are already overburdened.
According to the state Department of Taxation and Finance, ending deductibility would cost state taxpayers a total of about $57 billion. In the Capital Region, the average resident’s federal income tax bill would rise by $2,900. That’s too big a hit considering that taxpayers in states with lower taxes wouldn’t pay nearly as much more, and those in the lucky seven — states including Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, with no income tax — wouldn’t pay any more.
President George W. Bush made a similar proposal in 2004 that, fortunately for New York taxpayers, went nowhere. While it may not have been surprising for a Republican president — since most of the lowest-tax states are Republican, while most of the highest ones are Democratic — it’s quite a surprise for Obama. Whose side is he on, anyway?
The fairest way to raise tax revenue is by the graduated income tax, regardless of where the taxpayer lives. The tax code could stand a little simplification, and eliminating some deductions would surely achieve this. But, again, the focus should be on fat cats, not middle-class people who happen to live in high-tax states.
At the very least, if there’s going to be some elimination of deductibility, it should be very modest and phased out according to income.