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New York budget watchdogs are asking the governor and state lawmakers to take their time before enacting major changes to the state tax code in response to the new $10,000 federal cap on the state and local tax deduction.
Groups on different sides of the political aisle said there’s no need to make the changes before the April 1 start of the state fiscal year.
The call for a delay comes at a critical point in budget negotiations between Gov. Andrew M. Cuomo (D), the Republican Senate majority leader, and the Democratic Assembly speaker. They are meeting behind closed doors to hammer out an agreement on a new $168 billion spending plan for FY 2018-19.
Cuomo has proposed three key measures in response to the 2017 federal tax act ( Pub. L. No. 115-97): decoupling the state code from the federal code, enacting a new voluntary payroll tax, and creating two charitable funds.
Morris Peters, a spokesman for the state Budget Division, said budget negotiations are ongoing. Spokesmen for the legislative leaders didn’t respond to requests for comment.
The Fiscal Policy Institute, a liberal-leaning think tank, issued a statement March 26 saying “not everything must be done in a New York minute.” Ronald Deutsch, executive director of the Institute, told Bloomberg Tax that the complicated issues surrounding the tax workarounds and tax conformity should be aired during hearings after the state budget is enacted.
He said other states are looking to New York and the state should act deliberatively.
“Some decoupling from the federal law may indeed be warranted and should be explored further,” according to a March 26 report from the Institute. “It should ideally save money for the state and appropriately provide the benefit to those who need it most by ensuring or enhancing the system’s progressivity.”
E.J. McMahon, research director at the conservative-leaning Empire Center for Public Policy, said “it doesn’t have to be done now, and could only benefit from more public airing and consideration.”
“The corporate payroll tax doesn’t seem attractive to any business and the so called charitable giving option faces tough sledding with the IRS,” he told Bloomberg Tax in an email.
The Citizens Budget Commission is urging the state to take a multi-stage approach, according to Andrew Rein, director of the Commission’s Special Committee on Federal Tax Changes.
He said the state should create the new charitable funds and partly decouple from the federal code as part of the budget, but wait until after the budget to enact a new payroll tax. It’s important for the state to “do it well,” not quickly, he said.
“It’s not an all or nothing thing,” he told Bloomberg Tax.
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