The GOP tax reform effort that would shrink or repeal state and local tax deductions is upending economic plans in high-tax, deep-blue states like New York, California and New Jersey.
According to Politico, California officials are concerned the push will force local governments to cut taxes and slash money for schools and social services.
In New York, where state revenues and those in New York City depend on rich tax filers, there’s fears those earners will bolt — and force raising taxes on those who remain. And in New Jersey, incoming Democratic Gov. Phil Murphy’s promised millionaire's tax could implode.
"We're going to have to re-evaluate everything" if the repeal of state and local tax deductions becomes law, New Jersey Senate President Steve Sweeney has said, Politico reported. "I'm just saying that what's happening in Washington is concerning the hell out of me.”
Officials in California are predicting a GOP tax bill could transfer tax dollars paid by millions of Californians to other states – making it tougher for both the state government and local entities to find the revenue for needed services in the future.
“It’s going to make it harder for state and local government over time,” Chris Hoene, executive director of the non-partisan California Budget and Policy Center, told Politico about a repeal of the deductions, known as SALT.
“In the end, people’s appetites for paying taxes aren’t endless — and if you raise their taxes by taking away their deductions, their willingness to be taxed again to fund cut services is going to be harder.”
“Certainly, it will have a significant impact on funding education in the future, because the taxes people are paying that are already supporting education will go up,’’ he added.
New York City is facing similar angst, putting in jeopardy any plan to hike the existing “millionaire’s tax” to help fix the city’s aging and problem-prone subway system — and raising the prospect that if wealthy New Yorkers move away, taxes will be raised on those who remain.
The repeal of the deductions “is horrible policy for all New Yorkers. … there will be devastating ripple effects throughout the state that will negatively impact all taxpayers,” warned Michael Whyland, a spokesman for Democratic New York Assembly Speaker Carl Heastie, Politico reported.
For example, Politico reported, New Yorkers who make more than $100,000 a year pay 83 percent of personal income tax revenues for the state, while people who earn more than $1 million make up more than 40 percent of personal income tax revenue.
And though New York City residents who earn more than $1 million a year make up less than 1 percent of all city taxpayers, they bring in more than $4.2 billion in income tax revenue, or 43.6 percent of all the income tax revenue the city receives.
“These people pay such a huge proportion of the state’s taxes that you don’t need an exodus, you just need a few hundred more people to decide that they’re gonna go to Jackson Hole, Charleston, Boca Raton, to make a huge difference,” E.J. McMahon, research director at the nonpartisan Empire Center for Public Policy, told Politico.
“You’ve given them all the reason the world to think harder about that.”
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