On Thursday, Gov. Andrew Cuomo will detail his proposals to help New Yorkers affected by changes to the federal tax law. But Republicans who rule the state Senate are cool to the ideas, including one that creates a payroll tax instead of a state income tax.
Cuomo’s budget director on Monday previewed the plans, which will be released as part of the 30-day amendments to the governor’s state budget proposal. Robert Mujica said if changes aren’t made to mitigate the cap on deductions for property, state and local income taxes, higher-income New Yorkers will move out of state.
“Even if we only lose a small number of high-income tax payers, that would cripple the state’s revenues,” Mujica said. “And it would lead to large budget deficits, which fund many of the programs that people depend upon.”
He said it also would make the state less competitive and threaten jobs.
The plans include a voluntary payroll tax that employers and their workers could substitute for the state income tax. Republican Senate Majority Leader John Flanagan remains skeptical that the proposal could work.
“Payroll tax, that makes my head spin,” Flanagan said. “My visceral reaction is, I think all of my colleagues are opposed to it.”
Flanagan said he’ll wait to see the details of the bills before passing judgment. The plan would reduce a worker’s salary by the amount they pay in income taxes and convert the money to a payroll tax paid by the employer. The employee’s amount of take-home pay would be unchanged, but Flanagan said it still would be a hard sell to workers.
“The mentality of human nature will be, ‘I just got my pay cut,’ ” he said.
Cuomo also will release details on another proposal to create two charitable funds for health and education. Taxpayers could donate to the funds as a substitute for paying a portion of their property taxes and then receive a charitable donation tax credit on their federal tax forms.
Flanagan questions whether the process could be as straightforward as it sounds.
“It’s not going to be that easy,” Flanagan said.
The Senate leader also questioned Cuomo’s contention that the federal tax changes will cost the state $14 billion. He said in some parts of the state, including upstate New York, most taxpayers will benefit from the federal tax changes and the new, larger standard deduction.
Assembly Speaker Carl Heastie, a Democrat, said he supports the payroll tax idea and thinks it could work.
“If we do nothing, then those citizens of the state who itemize are looking at getting a big hit in their pockets,” Heastie said.
Heastie, who has a master’s degree in business administration and finance, said he has more concerns, though, about creating a charitable fund that could be substituted for property taxes. He’s unsure whether the IRS would allow the arrangement. And he said he doesn’t want constituents to end up owing the IRS money, as well as penalties, if the charitable deductions are found to be invalid.
“We want to protect them from that,” Heastie said.
Cuomo has proposed the tax code changes as part of the state budget, but Flanagan said he doubts the tax changes can be worked out by the budget deadline at the end of March.