January 23, 2018

New Tax Proposals to Fight the Federal Tax Assault

TOP New Tax Proposals to Fight the Federal Tax Assault
Charitable Contributions to Benefit New Yorkers
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Taxpayers have traditionally been able to reduce their income tax liability by taking deductions for contributions to certain organizations, including charities and Federal, State, local and Indian tribal governments. The new tax law retains and raises the limit on charitable deductions, increasing the contribution limit for 2018 from 50% to 60% of modified Adjusted Gross Income (AGI).

 

New York could encourage charitable giving to the State that would be deductible from federal taxable income for those who itemize their deductions. The State would encourage these contributions to State-operated charitable funds by offering a tax credit that would offset some percentage of the contribution.

 

Many states currently incentivize charitable contributions by providing state tax credits for all or some portion of certain charitable donations in support of public purposes and programs. These tax credits typically replace less valuable state tax deductions and complement the federal deductions that remain available for these contributions. For example, many states provide tax credits for donations to support public schools and colleges, with the value of these tax credits ranging from 10% to 100% of the gift.

 

New York State could establish one or more State-operated charitable funds to receive taxpayers’ contributions to support the delivery of programs and services across the state that improve the public welfare, including with respect to healthcare, homelessness and public education. The legislation establishing these new funds would specify the allowable uses of donations to each fund.

 

To provide an incentive for charitable giving to the new funds, the State would enact a tax credit that would offset some percentage of contributions to the funds made during the taxable year. The credit would be available to reduce a donor’s income tax liability, but any credit in excess of that tax liability would not be refundable or available for use in future years. The tax credit would be available to all residents and nonresidents who are required to file New York income tax returns.

 

In addition, the State could consider enacting legislation to authorize local governments to incentivize charitable giving through local property tax benefits.

More details on this proposal are available here.

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Employer Compensation Expense Tax
Employer Compensation Expense Tax
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During his State of the State address on January 3, Governor Cuomo announced that New York would consider the feasibility of restructuring the State’s tax code to reduce reliance on our current income tax system and establish a payroll-based employer compensation expense tax system. While the new tax law limits the deductibility of state income taxes for individuals, employer-side taxes on payroll will remain deductible. Relying more on employer-side payroll taxes and less on personal income taxes could, therefore, allow states to mitigate the negative impacts of the federal law. New York and all other states currently have some form of a state-level payroll tax in place.3 In fiscal year 2017, the State’s personal income tax (PIT) generated $47.6 billion in revenue, of which $37.5 billion was remitted as withholding from employee wages. Depending on policy design, a new employer compensation expense tax system could be expected to generate billions of dollars annually in federal taxpayer savings while keeping state revenues constant.

More details on this proposal are available here.

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Decoupling from Federal Tax Code
Decoupling from Federal Tax Code
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30-day amendments to the Executive Budget will include provisions to decouple the state tax code from the Federal tax code so that State taxpayers do not see increased state taxes because of Federal tax increases.  
 
The legislation to be advanced with the 30-day amendments will build on the preliminary report released in January by the Department of Taxation and Finance, which outlines options for state tax reform designed to mitigate the adverse impact of the federal legislation on our economy and on New Yorkers. After further study and extensive consultation with experts from state and local government, academia, and the private sector, the proposed reforms were found to be viable options for protecting New Yorkers. 
   
Decoupling from federal tax code: The state tax code is closely aligned with the Federal tax code. This legislation decouples the state tax code from the federal tax code, where necessary, to avoid more than $1.5 billion in State tax increases brought solely by increases in Federal taxes. Federal tax reform capped the itemized deduction for State and local taxes (SALT) at $10,000. The Governor proposes to decouple from this cap so New York taxpayers are not subjected to a $441 million State tax increase from the flow through of this cap to State income tax returns. The legislation also decouples from other Federal deduction changes, saving State taxpayers $269 million annually beginning in FY 2020. The 30-day amendments will also maintain the State standard deduction for single filers. Without this change, single filers would not be able to take the standard deduction on their State return, and New York taxpayers would have been subjected to an $840 million annual State tax increase beginning in FY 2020. 
 
More details on this proposal are available here.
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