Trump’s tax reform means trouble for tri-state tax-hikers
If you live in tax hell — New York, New Jersey, Connecticut, California or Illinois — paying your state and local taxes could soon be even more painful.
Congressional Republicans and President Trump have plans to lower federal tax rates for almost everyone and simplify tax rules. All good news. But there’s a catch for residents of high-tax states.
For now, tax filers can deduct their state and local taxes from their federal tax bill. But the House GOP tax reform eliminates those deductions to partly pay for dramatically lowering rates. The Trump tax overhaul, expected Wednesday, is said to cap these deductions. Ouch.
Almost half of New Jersey taxpayers and over one-third of California and New York taxpayers take these deductions. New Yorkers who itemize on average deduct a whopping $21,000 for state and local taxes. Hardly chump change.
Losing these deductions would be a costly blow to residents of high-tax states. But they shouldn’t pin the blame on GOP tax reformers. They should direct their rage at the tax-tyrants in Trenton, Albany, Hartford and other state capitals who impose excessive taxes to begin with.
New Yorkers shoulder the highest state and local tax burden in the nation, followed closely by residents of Connecticut and New Jersey, according to the Tax Foundation. Income taxes, gas taxes, sales taxes, property taxes, surcharges on high earners and investors, death taxes, even a cremation tax.
No wonder people are moving. According to United Van Lines, New Jersey, Illinois, New York and Connecticut top the list of states in the moving van’s rearview mirror.
One group not fleeing: public-sector workers. They’re on easy street.
In Connecticut, state employees earn a staggering 42 percent more in total compensation than private-sector workers doing the same job. In New York, they earn 34 percent more. Outrageous union demands — readily indulged by state politicians in exchange for votes — are ruining it for everyone else.
High taxes alone don’t cause people to leave the state, but they factor into a family’s cost of living. More important, taxes depress economic growth.
Which states are magnets for people escaping? States with a better economic outlook, according to the Pew Charitable Trusts. It’s not sunny weather that matters, but business climate. By that measure, New York is at rock bottom, with the worst growth prospects in the country, and Connecticut, California, Vermont and New Jersey are almost as bad, according to the American Legislative Exchange Council.
State lawmakers in these liberal bastions ignore the economic damage caused by their tax-and-spend excesses.
If state taxes can no longer be deducted, the damage will be even worse. Ignoring that, Gov. Cuomo just extended the so-called millionaire’s tax, which will harm far more than just millionaires.
Cuomo calls the tax change contemplated in DC “devastating.” Don’t be fooled. What’s devastating is the tax burden imposed by Albany.
Connecticut lawmakers, also blithely disregarding the impact of federal tax reform on their constituents, are pursuing a suicidal plan to hike state taxes and concoct new ones, including possibly a 19 percent tax on hedge-fund earnings.
Meanwhile in Washington, tax reformers make a strong case that eliminating deductions will help pay for rate cuts that benefit everyone. Floridians, Texans and residents of other low-tax states aren’t complaining. They know the deductions have coddled spendaholic politicians in high-tax states at their expense.
Look for a heated battle in Congress in the coming months. When President Ronald Reagan tried eliminating the deduction for state and local taxes, members of Congress from high-tax states — including some Republicans — defeated it.
Whatever happens this time around, the real issue isn’t whether state taxes are deductible. It’s that in some states taxes are too damn high.
Betsy McCaughey is a senior fellow at the London Center for Policy Research.