Taxes

IRS Finalizes Regulations Blocking SALT Workaround

The Internal Revenue Service and the U.S. Department of Treasury have finalized regulations regarding charitable contributions and state and local tax credits initially proposed last August.

The new rules are aimed at stopping taxpayers from federally deducting donations made to charitable funds run by state or local governments. Several states, including New York, created such funds to work around a cap on State and Local Tax (S.A.L.T) deductions.

The $10,000 cap was put in place by Congress as part of the Tax Cuts and Jobs Act of 2017. The Treasury Department and IRS said they delivered the decisions after reviewing more than 7,700 written comments and 25 comments made during a public hearing.

“About 70 percent of the comments recommended adopting the proposed regulations without change,” the release said.

According to the final ruling, if a taxpayer does not receive a dollar-for-dollar credit on the contribution made to a state charitable fund, he or she can deduct the difference.

“For example, if a state grants a 70 percent state tax credit pursuant to a state tax credit program, and an itemizing taxpayer contributes $1,000 pursuant to that program, the taxpayer receives a $700 state tax credit. A taxpayer who itemizes deductions must reduce the $1,000 federal charitable contribution deduction by the $700 state tax credit, leaving a federal charitable contribution deduction of $300,” the release said.

New York State offers an 85 percent credit for contributions made to its Charitable Gift Trust Fund and a 95 percent credit for local government fund contributions. In May, the New York State Division of Budget said taxpayers had contributed $93 million to the state fund – with the money steered toward health care and education.

“By finalizing this rule, the Federal government is continuing its politically motivated economic assault on New York – an assault that started with President Trump and his allies in Congress and is now being advanced by the IRS,,” Gov. Andrew Cuomo, D-NY, said in a statement. “The IRS should not be used as a political weapon. The regulations promulgated today lack any basis in the law, upend decades of precedent without authorization from Congress, and target programs established by New York and other states to incentivize charitable contributions.”

Cuomo said the state already sends $36 billion more to the federal government than its taxpayers annually receive back and the SALT cap has added an additional $15 billion that will be redistributed to Republican states. He said the administration will pursue all options, including legal action, to fight the decision.

Cuomo Announces Multi-State Coalition To Sue Over Tax Reform

As promised during his State of the State address, Gov. Andrew Cuomo, D-NY, is moving forward with plans to sue the federal government over the recently enacted tax reform. During a conference call Friday, Cuomo announced a multi-state coalition that plans to take legal action.

The coalition currently includes New York, New Jersey, and Connecticut but the governors of  those states said they expect many of the other states negatively impacted by the new tax code to join over the next few days. The main qualm with the bill is the partial elimination of deductibility for state and local taxes.

Cuomo said there are a number of strong arguments the legislation is unconstitutional, pointing to states’ rights to tax, citizens’ rights not to be double taxed, and the Equal Protection Clause.

“The top 12 states that get hurt coincidentally all happen to be Democratic states, coincidentally have virtually no representation in the United States Senate, coincidentally only have a small minority of House members, coincidentally are states that President Trump lost in the last election,” Cuomo said.

The three governors said in the coming days they’ll work out where they’ll file the lawsuit but they expect it would be in one of their states because they’re affected the most. Gov. Dan Malloy, D-Connecticut, said he would expect the litigation to move quickly although noting the discovery process should be interesting.

“I can’t imagine that there aren’t Republican documents and communications between the likes of (Senate Majority Leader ) Mitch McConnell and the Speaker and so many others about what they were doing to those blue states.,” Malloy said.

Cuomo said the 12 states negatively affected together represent more than 40 percent of the country’s Gross Domestic Product. The governor at the same time is looking at state legislation like a payroll tax or state-run charitable fund to mitigate the deductibility issue.

Republican members of Congress have argued the partial elimination of the SALT deductible does not impact middle-class taxpayers because the standard deduction was doubled.

Higgins: GOP ‘Bought Off’ Members Opposed To Tax Bill

From the Morning Memo:

Rep. Brian Higgins, a Buffalo Democrat, spoke with Spectrum news before the U.S. Senate vote on the tax reform bill, and prior to learning the House would be forced to re-vote this morning due to a technicality.

In Higgins’ mind, the end result is inevitable – the measure will pass both houses and be sent to the president’s desk before Christmas, just like Republican leaders wanted.

“I think they bought everybody off so those who were opposed to it last week are for it this week,” he said.

Higgins said if the bill is signed into law by President Donald Trump, as is expected – likely next week – it won’t matter what a review of the reconciliation process turns up.

Yesterday on the House floor, he called for an investigation before any further votes were taken, though he the effort was, at best, a long shot.

“That will not likely happen, but I am on the public record very clearly calling for that action to take place,” Higgins said.

The congressman took particular issue with an late addition to the legislation that would provide tax breaks for real estate trusts with no employees. He said the stipulation will directly financially benefit 14 members of Congress – including some who were previously opposed to the bill.

“This conference committee, this reconciliation process is intended to narrow the differences between the two bills,” Higgins said. “All of a sudden a very new provision was imposed in this process at the eleventh hour.”

He said he believes there’s clear and compelling evidence that something happened that should have, but said at this point he has done what he can by voicing his concerns and is looking at ways to move forward.

Higgins Fights For Historic Tax Credits

From the Morning Memo:

One item eliminated in the federal tax reform legislation has many upstate developers concerned. On the House floor yesterday, Rep. Brian Higgins, a Buffalo Democrat, issued a call to preserve Historic Tax Credits.

Higgins, a member of the tax-writing Ways and Means Committee, said the credits pay for themselves. In fact, he said, they generate $1.20 for every $1 credited by the federal government.

“When historic buildings are renewed, including in my community of Buffalo, New York, Main Streets across America are restored, jobs are created, and business, income and property tax revenues are generated,” Higgins said.

“The federal Historic Tax Credit does, in fact, pay for itself and more by helping cities and communities to become economically independent and self-sufficient.”

In a press release, Higgins cited a National Parks Service report that Historic Tax Credit-related investments generated 86,000 jobs and $3.5 billion in income nationwide for the 2015 fiscal year. He said New York state utilized more of the dollars, $748 million, than any other state.

The congressman said his Western New York region has also led the state in the past five years with 88 total projects.

One Buffalo-area developer, Rocco Termini, told Spectrum News if the credits aren’t restored it will paralyze upstate cities.

Both Higgins and one of his Republican colleagues, Rep. Tom Reed, have vowed to fight for Historic Tax Credits in Western New York and the Southern Tier.

Although both are members of Ways and Means, which helped craft the tax bill, neither are on the committee to reconcile the differences between the House and Senate bills.

Higgins: Tax Reform is ‘A Massive Giveaway To Corporate America’

From the Morning Memo:

Western New York Democratic Rep. Brian Higgins, a member of the House Ways and Committee, railed against the Republican tax reform plan yesterday in Niagara Falls, accusing his GOP colleagues of misrepresenting the plan as a middle-class tax cut, when it is really a gift to large corporations.

Higgins seemed to concede there may be some measures in the proposal passed by the House that could benefit most Americans, but insisted they will be fleeting.

“It’s a massive giveaway to corporate America,” he said. “All the tax cuts supposedly for middle America are temporary. All the corporate tax cuts are permanent.”

The congressman said he doesn’t buy the GOP argument that more money for corporations will help create jobs and stimulate the economy. He pointed to roughly $2 trillion worth of U.S. Treasury Bonds, and another $2 trillion in non-taxed foreign accounts that the companies could already be spending.

“If they wanted to invest, they could use that money,” Higgins said. “They already have the money, so this would really just give them that much more money, and the Congressional Budget Office estimates that to be about $1.7 trillion.”

Higgins was also skeptical of a proposal to “repatriate” those oversees earnings by instituting a one-time tax, hypothetically allowing corporations to bring the money back to the country to be invested.

“Why should they be given a discount to bring those monies back,” he said. “I think there’s other ways of going after that money.”

The issue of tax reform has now been kicked to the U.S. Senate, which is expected to take up its own bill next week following the Thanksgiving break.

“Many Republican senators whose votes are needed to pass this have expressed concerns about deficit, have expressed concerns about health care now being thrown into this again,” Higgins noted. “Will that influence them to vote against it? I’m not quite sure.”

He said the U.S. does need a real middle-class tax cut to stimulate economic growth. Higgins said 70 percent of the economy is consumption, so if people have more money, they’re almost sure to spend it.

 

Reed Won’t Support Tax Reform That Completely Removes SALT Deduction

A House GOP compromise to restore a controversial tax deduction in its reform bill was not included in the Senate version released Thursday. House Ways and Means Committee member Tom Reed made it clear full elimination of the State and Local Tax Deduction is not an option in heavily taxed states like New York.

“I will not support legislation that removes completely the ability to deduct State and Local Taxes,” he said.

The House compromise restored the deductibility of property taxes, up to $10,000, while eliminating the income tax deduction. Reed said he’s confident, as the two houses work out their differences, the property component will be restored, potentially with an even higher cap.

He said with 73 Republican members from high-taxed states like New York and California in the House, he sees no scenario where a bill without it could pass. Regardless, he believes plans to get the legislation to the president’s desk by the beginning of next year are still on track.

“We’ve been working on this for seven years. We’ve had numerous hearings in the House and the Senate. Tax reform hasn’t been done since 1986, 31 years ago. It’s time to get this done.”

Reed and his colleagues on Ways and Means passed the House bill from committee Thursday. The Democratic Congressional Campaign Committee sharply criticized the action and said, according to polling, the plan is unpopular with voters.

“The Republican Tax Scam is nothing more than huge tax cuts for the rich and big corporations, paid for by tax increases on millions of middle class families,” DCCC Spokesman Evan Lukaske said. “Representative Reed’s decision to push forward with this Tax Scam despite strong opposition from hardworking Americans will haunt him at the ballot box in 2018.”

Gov. Andrew Cuomo also took aim at the Southern Tier congressman. In a press release, Cuomo said nearly 60,000 taxpayers in Reed’s district would be affected by the reform plan, seeing an average increase of more than $2,500.

The congressman said he’s taking a look at the claims but doesn’t believe the governor has his numbers right.

“My conclusion of the data is that it’s completely false. That is not accurate. That’s manipulation of the data in order to serve his political message that he’s trying to deliver here and you know the name-calling and everything else that he wants to engage in, you know, I’m going to set that aside,” he said.

Aside from the elimination of the SALT income tax deduction, Cuomo also said the elimination of the tax-free nature of private activity bonds will kill jobs and prevent critical infrastructure projects.

Reed: Stay Tuned On Possible Historic Tax Credit Elimination

From the Morning Memo:

While the full Republican tax reform plan has finally been released, there’s still plenty of legislative process left to go. Republican Rep. Tom Reed, a member of the House Ways and Means committee responsible for crafting the measure, says work on the plan continues.

He believes Congress is on track to move the bill through both houses and get it on the president’s desk by the end of the year. While recognizing the GOP leadership’s recent struggles to move anything of substance through Washington, Reed believes this time will be different.

“I do believe the conference has learned a lot from the healthcare situation, and I could sense it in the conference today when (the tax reform plan) was rolled out to our colleagues on the Republican side,” he said. “There is a positive energy where we feel united.”

One of the major points of contention, particularly in New York and other highly-taxed states, was the proposed elimination of the State and Local Tax reduction, known in political shorthand as “SALT.”

Reed said there was a lot of effort to preserve the deduction in its entirety, but that effort failed.

In the end, Republicans reached a compromise, preserving the property tax deduction up to $10,0000 while eliminating the income tax deduction. Reed said the GOP has done analysis in his rural district, NY-23, and found 99.7 percent of taxpayers will benefit from the compromise.

“If the one percent have to pay the same or pay a little bit more, I’m willing to declare that a victory and accept that position and take the heat from those individuals,” the congressman said.

The congressman said he’s not 100 percent satisfied with the end result. For example, the bill will add significantly to the national deficit, which is not something he’s thrilled out, and he plans to continue to do everything he can to limit that hit.

Reed said he does believe that the plan, if passed, can create significant economic growth that would mitigate its downsides.

“You start growing the economy, you can go a long way to bridging that debt crisis that’s upon us,” he said. “You’ve heard me say it repeatedly, the solution to our national debt crisis is growth. We’re delivering that with this bill.”

Reed also addressed concerns about the proposed elimination of the Historic Tax Credit, which is commonly used to save buildings and spur economic growth in rust belt areas like Western New York and the Southern Tier.

Reed said he is a firm believer in the credit, and insisted it’s not dead yet.

“Stay tuned,” he said “We are working every angle, also our partners in the Senate in particular. So we have a Plan A. We have a Plan B, and as we go through this process we just ask you to bear with us.”

The congressman would not commit to voting against a final bill that doesn’t preserve the Historic Tax credit. He said he believes lawmakers who hold out for a bill that contains 100 percent of what they want tend to cause “destruction and gridlock.”

Cuomo Again Speaks Out Against Tax Reform Plan

When it comes to the Republican tax reform plan, Gov. Andrew Cuomo, clearly has a lot to say. Two days after penning a 600-plus-word editorial to the Buffalo News, Cuomo spent nearly nine minutes during an interview with Spectrum News talking uninterrupted about how he believes the bill will hurt New York.

“It will put us at a structural disadvantage that we’ve never had before,” said Cuomo, D-New York.

We still haven’t seen the bill. House Republicans were planning to unveil it Wednesday but at the last minute, decided to postpone a day.

Part of the conversation includes finding a compromise on the State and Local Tax deduction, which many GOP members are hoping to eliminate. The governor said that would raise taxes for middle-class families in New York, where state and local taxes are among the highest, by thousands, annually.

“That plan is all bad news for the state of New York,” Cuomo said. “They call it a tax cut program. It’s not a tax cut program for New York. It’s a tax increase program for New York.”

The compromises Republicans have discussed include preserving the deduction for property taxes but eliminating it for income. That plan has been criticized by Senate Democratic Leader Chuck Schumer as a “half-baked” compromise that would still double the tax on millions of Americans.

Another proposal would preserve the deduction for middle-class families while eliminating it for higher earners. Cuomo said that goes against what Republicans in New York have been saying for years.

“The Republican doctrine, Republican dogma, is if you raise taxes on the rich you will chase them from this state, chase them from the counties to other states,” he said.  “If the rich leave and take their tax dollars with them, that means that burden falls to the remaining taxpayers, the middle class and middle class taxes will go up even more. This is math. This is not politics.”

The governor’s active effort to reach a Western New York and Southern Tier audience also does not appear to be a mistake. Cuomo has focused his ire on the two GOP congressmen from that area, Rep. Chris Collins and Rep. Tom Reed, both of whom voted in favor of the House spending bill which paved the way for the tax bill. They were the only two New York Republicans to do so.

“Why would seven Republican Congress people buck their president and their congressional leaders unless it really hurt their constituents? And this will really hurt their constituents,” Cuomo said.

The governor said the argument that New York just needs to lower its state taxes is flawed. He claimed, as he has often in the past, that spending under his administration is at the lowest level in state history and he has actively worked to limit property tax increases.

Cuomo said if rich people and businesses leave it will create a situation where an already $4 billion deficit could increase. If that happens, he said, it would come on the backs of middle-class families.

Tax Bill Appears To Include SALT Compromise

It appears the Republican tax reform plan will include a compromise when it comes to the highly-debated proposed elimination of the State and Local Tax deductible. On a conference call, Rep. Tom Reed, R-NY, told reporters a proposal that would preserve the deduction for state and local property taxes but eliminate the state income tax deduction is gaining traction.

Reed and Congressman Chris Collins were the only Republican members from New York state to support the passage of a House spending bill that paves the way for the tax reform package. Their votes, which turned out to be critical, have drawn the ire of a number of Democrats including Gov. Andrew Cuomo who recently penned an editorial calling them modern-day “Benedict Arnolds.”

While Collins and Reed have been supportive in general of the tax overhaul, they have not overtly supported the elimination of the so-called SALT deductible. In fact, Collins applauded news that the property tax deduction would likely be restored.

“I am pleased that (House Ways and Means Committee) Chairman (Kevin) Brady has agreed to keep the SALT property tax deduction in the new tax reform legislation,” he said in a statement Monday. ” It goes to show you that leadership does listen to the concerns we as members point out.  Now, New York taxpayers are poised for a big victory when federal tax reform provides them with more money in their pockets and better economic opportunity.  It’s time for Andrew Cuomo to follow our lead and deliver comprehensive tax reform when it comes to the state income and property taxes New Yorkers pay.”

Senate Democratic Leader Chuck Schumer, however, called the compromise “half-baked.” He said the majority of SALT deductions for middle-class families in New York state are from income taxes.

“Keeping the property tax deduction, but eliminating the state income tax deduction, will still hurt a huge numbers of taxpayers who take SALT in New York,” he said. “This plan is damaging to New York and should be resoundingly rejected by every House member from this state. Republicans are so devoted to providing tax giveaways to the wealthy and big corporations, that they go searching for pay fors in the pockets of the middle class. They should scrap this emerging framework and work with Democrats in a bipartisan way to reform our tax code.”

Critics of the SALT deduction argue it penalizes taxpayers in lower-taxed states while rewarding higher-taxed states like New York and California. House Republicans plan to release the full text of the tax bill Wednesday.

Counties Release Shared Service Plans

County governments could save a combined $208 million in 2018 with the shared services proposals that were unveiled this week in Albany.

All together, 34 counties out of 57 have adopted a plan by Sept. 15. The remaining counties will adopt plans by Sept. 15 of next year, based on legislation approved in the state budget in April.

“The first round of the local shared services program has gotten results with plans across the state projecting reductions in property taxes, finding efficiencies, and achieving better coordination among local governments across the state,” said Jim Malatras, the president of the Rockefeller Institute of Government. “The process has promise for future efforts because it has laid the foundation for better coordination and cooperation among local governments.”

The counties with the highest savings for the first year include Nassau County with $13.5 million and Broome County with $20.3 million. Suffolk County will save $16.5 million and Dtucehss County $15.2 million.

In the out-years, Suffolk County will save $20.9 million, with Dutchess saving $12.5 million.

“It’s critical for New York that counties and other local governments have embraced intergovernmental collaboration and are working together to create economies that will result in savings and improved services for their taxpayers,” said Gerald Benjamin, director of the Benjamin Center at SUNY New Paltz.

The shared service plans had been pushed by Gov. Andrew Cuomo as a means of controlling the local property tax burden. Local government officials have chaffed, though, at the claims that the proliferation of governments and taxing districts has led to high taxes, instead placing the blame on the mandated spending placed on them by Albany.