October 2017 Column – Our Stake in Federal Tax Reform

I pay a lot of taxes. Many of my neighbors do, too. In fact, a number of studies have concluded that residents of Western New York pay some of the highest state and local taxes in the nation. As both a county legislator and a homeowner this literally hits close to home. I have worked hard to keep Erie County taxes down. But even though the general county property tax rate on true valuation has decreased during my tenure, I am well aware that my constituents struggle each year to pay their total property tax bill, which includes school taxes, city or town taxes, and even village taxes for those in the Village of Kenmore.

Up until now, many of us have been able to receive a small degree of consolation for our high state and local taxes from an unusual source – the federal government. That is because those of us who itemize our deductions when we file our federal tax returns can deduct our state income taxes and local property taxes. This means that taxpayers in the 25 percent bracket will receive 25 cents back from the federal government for every dollar they pay in state and local taxes. Taxpayers in higher brackets fare even better. In effect, we are able to export some of our high taxes to Washington.

Our high taxes in New York mean that we have a larger stake than most other states in the discussions going on in Washington right now concerning federal tax reform. Although all the details are not known, the president and congress are looking to reform, simplify and presumably cut federal income taxes. Most of us would support such efforts. However, like with so many things, the devil is in the details. Unfortunately, we do not know all of the details.

Some of the proposals being kicked around should concern those of us who live in New York and other high tax states. This is especially true of the proposal to eliminate the federal deduction for state and local taxes. If this were to be passed, we would no longer be able to export a portion of our high taxes to DC.

Those pushing elimination of the deduction tell us not to worry because they also plan on doubling the standard deduction on our federal taxes. They would have us believe that this move would more than make up for the loss of the state and local tax deduction. Maybe it would and maybe it wouldn’t. Again, the devil is in the details.

What is certain is that such a move, even if accompanied by a doubling of the standard deduction, would help low tax states more than high tax states. Residents of states like Texas and Florida which have no state income taxes would get the advantage of higher standard deductions without giving up as much in terms of deductions.

Tax reform at any level is not easy. Perhaps that is why it does not happen all that often. But it is happening now and we owe it to ourselves to pay attention as it will affect how much we owe the federal government on April 15.

If you have thoughts you would like to share, I would love to hear from you. I can be contacted by phone at 858-8672 or via email at kevin.hardwick@erie.gov.

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