ALBANY, NY—Earlier today The Business Council of New York State, Inc. sent a letter to the state’s Congressional delegation urging them to protect state taxpayers during negotiations over comprehensive reform of the nation’s tax code.
The body of the letter is pasted below, and a copy of the version sent to Senate Minority Leader Charles Schumer (D, NY), may be found here.
As Congress turns its focus to tax reform, New York’s business community urges you to fight against any proposals that will have a disproportionate adverse impact on New York State taxpayers and on New York State’s economy.
Specifically, the repeal of the federal itemized deduction for state and local taxes paid will hit New York’s economy more significantly than that of most other states. The impact will be felt by taxpayers statewide, but will be concentrated in the New York City metropolitan area, currently the state’s strongest regional economy, on which the state’s fiscal health is dependent.
This deduction is not a “loophole” or a concession to special interests, as are so many other provisions. Almost uniquely, this deduction was included in the first Federal income tax in 1862, used by President Lincoln to fund the Civil War. It was deemed essential for fiscal federalism, so that the Federal government did not invade the tax base of the states and citizens were not double taxed. For these reasons, it has been included in every Federal income tax form for over 100 years since the current Federal income tax law was enacted in 1913.
It is not just New York that is affected. The adverse impact of the loss of this deduction will be felt in states and localities across the nation, damaging their ability to finance local services, especially education and public safety.
That is why the proposal is also opposed by the National Association of Counties, the National Governor’s Association, the Conference of Mayors, and the Conference of State Legislatures, as well as leading education groups.
One argument being made is that this provision provides a “subsidy” to high tax states like New York by low tax states. In fact, as first documented by Senator Moynihan nearly 40 years ago, New York State has long been a net contributor to the federal budget, with its residents paying far more in federal taxes than receiving in federal spending. According to a recent study by the State Comptroller’s office, New York has a negative federal balance of payments second only to New Jersey (nearly $20 billion in FFY 2014) New York taxpayers already provide one of the largest subsidies to the Federal government and other states; eliminating this deduction will only increase New York’s subsidy to Washington, heightening this imbalance.
Even if other Federal tax changes under consideration could benefit some New York taxpayers, the loss of state and local tax deductibility will result in higher taxes for many individuals and small businesses in New York State, and make New York less economically competitive with other states, including those that – ironically - depend more heavily on New York-subsidized federal spending than local tax revenues to provide essential government services.
While there is an urgent need for federal tax reforms, especially the adoption of a competitive corporate income tax rate and a territorial business tax regime, it is essential that you oppose proposals like this which would damage New York State taxpayers and businesses – large and small – and New York’s economic competitiveness.