How the Hudson Valley Will Shift Under the Senate Tax Bill
Property taxes, state and local taxes, and deductions may all be changing in the near future.
DONCON402 | FOTOLIA
Pushed through by a single vote in the early hours of Saturday morning, the Senate Republican proposed tax bill was and continues to be divisive. The Hudson Valley, like New York City and much of the Northeast and California, is in a unique position to be hit disproportionately hard by the proposed changes. Here’s what you need to know:
One of the bill’s key features is to place a cap on property tax deductions: $10,000. Fortune estimated the average property tax bill in 2015 to be about $5,500. As a result, homeowners paying more than $10,000 under these new provisions would be almost guaranteed to lose thousands of dollars in tax deductions, essentially being federally taxed on income already paid to local taxes.
As a result, the tax revisions as proposed might make it increasingly less affordable to live and own property, dealing a significant blow to the housing and commercial real estate industry. While a chief argument of the tax plan was to foster economic growth by cutting corporate tax rates, it seems unlikely these businesses would choose to spend their newfound funding in municipalities with higher tax rates for both its properties and employees.
Standard and Itemized Deductions
One of the greatest touted benefits of the Republican-drafted tax plan is that it doubles the standard deduction to $12,000. For the approximately two-thirds of U.S. households that take the standard deduction this would be helpful, however high-tax regions see a greater percentage of taxpayers choosing to itemize their deductions for a larger return. With additional cuts to what can be considered tax deductible, a good chunk of residents may end up losing money on this deal.
State and Local Tax (SALT) deductions are what allow residents to deduct on their federal taxes the amount they pay in certain local taxes — such as property or estimated sales tax for their purchases made throughout the year — thus reducing their overall taxable incomes and potentially even dropping them down into a lower tax bracket. Taxes paid for local school systems and emergency services are also currently considered tax-deductible, and reduce federally taxable income.
The proposed tax plan would completely eliminate SALT deductions, effectively collecting federal taxes without regard to how much is paid in state and other local (i.e. city) taxes. As the New York Times reports, of the dozen counties with the highest reliance on SALT deductions in the U.S., half are in the NYC Metro area.
All this results in a large number of New York residents paying significantly more in taxes right away. The remainder will likely see a small decrease in taxes for the next decade or so, before provisions in the plan begin shifting the tax burden more heavily onto middle-class incomes, increasing the national deficit by well over $1 trillion. (Yes, “trillion” with a T.)
As a result of a law in place since 2010, that increase in deficit would trigger automatic cuts to spending in Medicare and other social programs, services which many Valley residents depend on, especially the elderly and those in lower-income households.
Added together, a bulk of Valley residents would see their federal deductions significantly decreased under the proposed legislation, while simultaneously seeing a corresponding decrease both in the value of their homes and in the availability of public services.
Local politicians on both sides of the aisle have come out in opposition to the Senate tax plan, including Governor Andrew Cuomo (D), as well as officials from New York City, New Jersey, and the Metro area.
Optimistically, the tax plan is not final. Rather than coming from the House of Representatives and moving to the Senate, the Senate chose to follow House Republicans’ tax bill with one of their own. Even following their narrow victory, this bill will have to be reconciled with the House’s before a revised plan can be sent to the president for ratification. Many House Republicans were displeased with various compromises in the Senate plan, so any final bill may end up bearing little resemblance to what is now being deciphered.
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