Donovan Leads Effort to Protect State and Local Tax Deduction for Hardworking New Yorkers
Washington, DC – June 27, 2017….Continuing his work to protect hardworking and middle-class taxpayers, Congressman Dan Donovan (NY-11) led a letter with six members of the New York Republican Delegation urging U.S. Secretary of Treasury Steve Mnuchin to reconsider the proposed elimination of the federal deduction for state and local taxes (SALT), which is included in the Administration’s proposed tax reform plan. The SALT deduction, which has been a part of the U.S. tax code since 1913, allows New Yorkers, as well as taxpayers across the nation, to write off their state and local income tax from their federal returns to prevent double taxation.
The letter cites the unfair impact the elimination of the SALT deduction would have on middle-class families from high-tax states, including New York, who can least afford additional tax increases.
“The SALT deduction affects filers’ taxable income, so its elimination would push some people into higher marginal tax brackets and would thus reduce incentives to work and invest. In fact, eliminating the SALT deduction would reduce long-run GDP by 0.4 percent and would lead to over 200,000 jobs lost. The deduction for state and local taxes matters for all Americans, but it affects New York disproportionately. The state has 3.2 million residents who claim the deduction, and New York’s itemizers make up primarily lower- and middle-income households: 85% of those who claim the SALT deduction earn less than $200,000 in annual income.”
The members go on to explain that New York delivers more in tax revenue to the federal government than what is receives back. “The state has been a net payer to the federal government for decades, and while New York City residents pay $96 billion in personal income taxes, the City receives back only about $61 billion from the federal government.” Ending the SALT deduction would further increase the disparity between the federal money New York taxpayers pay and the benefits they receive.
The Tax Policy Center estimates that New York State residents claim an average of $21,038 in state and local taxes on their federal returns. Additional reports show that the loss of this deduction would cost New Yorkers an average of $4,500 more per year, for a total tax increase of $14.8 billion.
Congressman Donovan was joined on this letter by Representatives Peter King (NY-2), Elise Stefanik (NY-21), Claudia Tenney (NY-22), John Katko (NY-24), John Faso (NY-19), and Lee Zeldin (NY-1).
Full text of the letter and additional quotes can be found below.
June 23, 2017
Dear Secretary Mnuchin:
We write to you – on behalf of the hardworking, middle class taxpayers we represent – to express our deep concerns about the proposed elimination of the state and local tax (SALT) deduction. As you know, the SALT deduction permits taxpayers to subtract their tax payments to state and local governments from their federally taxable income. Without the SALT deduction, taxpayers in all 50 states and in the District of Columbia would be doubly taxed – they would pay federal income taxes on the money they pay to their state and local governments. Such a policy is eminently unfair, as the federal tax code has recognized for the past 103 years.
State and local tax deductibility has been a feature of our system since the first three-page income tax in 1913. A century later, it continues to make just as much sense to avoid a crowding-out ‘double-tax.’ The deduction supports principles like homeownership, lower middle-income taxes, local school funding, tailored social services, and incentives for people to live where local government stewards the public money.
Double taxation belies the basic philosophical underpinning of a smaller, leaner government. Citizens are forced to spend a percentage of their earnings on state and local taxes or face severe legal consequences. The portion of their income dedicated to state and local government coffers, therefore, is not “earnings” under even the most liberal definition. To tax citizens on income they never see – regardless of the massive amounts of revenue it may raise for the federal government – is contradictory to our basic perspective on government largesse.
We firmly believe in the long-held conservative economic orthodoxy that higher taxes reduce incentives to work. The SALT deduction affects filers’ taxable income, so its elimination would push some people into higher marginal tax brackets and would thus reduce incentives to work and invest. In fact, eliminating the SALT deduction would reduce long-run GDP by 0.4 percent and would lead to over 200,000 jobs lost.
The deduction for state and local taxes matters for all Americans, but it affects New York disproportionately. The state has 3.2 million residents who claim the deduction, and New York’s itemizers make up primarily lower- and middle-income households: 85% of those who claim the SALT deduction earn less than $200,000 in annual income. The vast majority of those people are homeowners. The National Association of Realtors said eliminating the deduction would “nullify the current tax benefits of owning a home for the vast majority of tax filers.” In fact, New York proudly pays more than its fair share to the federal government. The state has been a net payer to the federal government for decades, and while New York City residents pay $96 billion in personal income taxes, the city receives back only about $61 billion from the federal government.
Because we laud and support the goals of growth and job creation, tax simplification, and tax relief, any reform package must equal the benefits that state and local tax deductibility have already provided for over 100 years. Indeed, we anticipate such benefits for the people we represent because of your statements to our delegation about the offsetting proposed increase in the standard deduction coupled with simplified and lowered tax brackets. However, before reaching any conclusions, we will analyze any reform package on how it affects our constituents, and we will ultimately do whatever provides our constituents the biggest tax benefit.
We hope you will consider the impact on the people we represent as we continue crafting an innovative plan that also respects long-standing principles of federalism. We are grateful for your leadership in this matter and look forward to continued work on behalf of the American public.
Congressman Donovan said, “Simplifying the tax code by reducing rates and making the system fairer is long overdue, but it shouldn’t be done at the expense of New Yorkers who already face high living expenses and pay their fair share of taxes. The elimination of the SALT deduction – without guaranteeing a net-benefit for those who rely on it – would be reckless and devastate middle-class Americans. My priority will always be to deliver meaningful tax relief that helps hardworking families and businesses keep more money in their pockets. I support the Administration’s overall goal to streamline our tax code, and I look forward to working with leadership to ensure the needs of New Yorkers are represented and included in the final plan.”
“I am committed to pursuing fundamental tax reform to grow our economy, and I applaud President Trump for making this a top priority for his Administration,” said Congresswoman Stefanik. “As the details are worked out between Congress and the White House, I join my colleagues in calling attention to the importance of maintaining the state and local tax deduction for families in the North Country and across New York. Eliminating this deduction would slow the growth of our economy and cost our state jobs. I look forward to continuing to work on this important effort throughout this Congress.”
“Reforming our tax code is vitally important and remains among my top priorities. As a small business owner and resident of nearly the highest taxed state in the nation, I have seen firsthand the devastation caused to our region by the complex, unfair tax code. In New York, soaring taxes have driven businesses and residents out of our state in record numbers, crippling our local economies. Lowering tax rates will provide much needed relief while encouraging economic growth and job creation throughout the entire nation,” said Congresswoman Claudia Tenney. “However, I cannot support eliminating the SALT deduction. Until New York completely overhauls its tax code, removing this provision will strip hardworking New Yorkers of their only real tax relief. I will continue to fight for comprehensive tax reform while working to ensure that New Yorkers are not unfairly burdened by any change to the tax code.”