Weekly Feature

2017-11-08 / Front Page

With proposal to trim SALT deduction, Clarence wonders how effects will be felt


When Republican lawmakers unveiled the “Tax Cuts and Jobs Act” act last week, which includes several proposals in an effort to present a tax cut for middle- and high-income Americans, debate immediately ensued as to how the cut would be paid for.

As of now, the bill’s language answers that question by pointing toward the wealthy in blue states such as New York and California, and that could have far-reaching fiscal ramifications for affluent suburbs like Clarence.

The bill includes many proposals for change to the corporate and individual tax system. For one, the legislation would consolidate the current seven-rate income tax structure to four rates. While many individual deductions would be repealed, the bill would also put into motion a process to repeal the estate tax — a move long sought by conservatives.

But other components within the legislation have not been so well received. Most prominently, the bill calls for a trimming of the state and local tax deduction, which is a benefit that allows people to deduct property taxes from their federal bill. Initial drafts of the bill called for the elimination of the SALT deduction entirely, but the final language of the bill calls for the deduction of property taxes to be capped at $10,000 per person.

The deduction essentially acts as a subsidy to state taxpayers. When state taxes rise, claimants of the SALT deduction see their federal taxes go down, which encourages state and local governments to levy higher taxes for more services.

Subtractions to the SALT deductions have been vocally opposed in New York by a bipartisan group of politicians, coalitions and organizations who argue that any reductions in SALT will hinder the ability of New Yorkers to afford home ownership and could reduce educational opportunities as taxpayers begin to move out of the state.

An analysis from the Tax Policy Center stated that roughly 81 percent of tax filers with incomes exceeding $100,000 claimed the SALT deduction. Similarly, the Committee for a Responsible Federal Budget found that New York and California receive about 31 percent of the total benefits from the deduction, as both states feature high taxes and many high-income taxpayers.

For the Trump administration, the trimming of SALT gives the federal government the “pay-for” it needs to fund the slashing of the tax rate for corporate and middle-income Americans, while keeping good on the promise to close tax loopholes.

Reps. Tom Reed and Chris Collins were the only Republican House members from New York to support the passage of the spending bill that included a trimming of the SALT deduction — a move that has been met with derision by many in their own districts.

“The SALT question has to be corrected. Otherwise, we’re not helping Western New York, and especially not helping the Town of Clarence,” said Clarence Town Supervisor Pat Casilio, who noted that it is crucial for homeowners in the region to receive a write-off for property taxes as they refinance homes, take on mortgages and pay for home construction.

For some of those residents to whom Casilio refers, the Tax Cuts and Jobs Act includes another ominous change in that it proposes a withdrawal in the mortgage interest deduction. Under current law, Americans can deduct interest payments made on their first $1 million of home loans. The new bill would grandfather in existing mortgages, but for new mortgages, home buyers would only be able to deduct interest payments made on their first $500,000 of loans.

Sarah Minkel, communications director for Collins, told The Clarence Bee that while lawmakers are “still doing all of the math,” the Tax Cuts and Jobs Act allows for larger tax brackets and therefore, lower rates, which will result in lower taxes for the middle class.

“People may be concerned that they’re losing certain deductions, but the standard deduction is going to be doubled,” said Minkel. “So, a married couple was getting about $12,000 under the standard deduction, now they’re getting $24,000.”

However, the trim in mortgage deductions affects more than just the housing market, says Geoffrey Hicks, superintendent of the Clarence Central School District, who believes that it could have a negative impact on the district to generate revenue in the future.

“Even if you double the standard deduction, that may not be as high as the property tax that some people pay on homes that have a high value,” he said. “So, when you cap a mortgage deduction at $500,000, even though there’s not a huge number of houses in Clarence that are higher than that, there are enough to cause those taxpayers to consider whether or not they want to stick around in the state.”

In its analysis, the Tax Policy Center noted that the claiming of the SALT deduction rises as income rises. That could prove to be a foreboding evaluation for a town such as Clarence, which has consistently topped wealth rankings in the region. According to data from the U.S. Census Bureau, from 2011 to 2015, Clarence was ranked first in Western New York for median household income. Additionally, about 21 percent of all households in Clarence had annual incomes of $150,000 or more.

Minkel says that despite a reduction in SALT, the bill adds new ways for residents to claim lower taxes. She points to an enhanced child tax credit, which increases to $1,600 per child from $1,000 and adds a new $300 credit for parents, as well as the elimination of the alternative minimum tax. The AMT requires wealthy filers to process their taxes a second time with minimal exemptions.

“We think this is something that’s going to be extremely beneficial to people in our district,” Minkel said. “Previously, taxpayers would have to be doing their taxes twice and having to pay the higher rate.”

But Hicks points toward facets of the bill that have not been heavily discussed that may still prove to have the most detrimental effect for Clarence residents, specifically referencing the bill’s elimination of the student loan interest deduction, which allows any individual with income up to $80,000 repaying student loans to deduct up to $2,500 in student loan interest paid.

“We aspire to have every one of our kids here in Clarence to attend a two- or four-year college. We think that it’s harmful for people to not be able to deduct those things from their income tax,” said Hicks. “If people are unable to deduct from one place, would they still continue to support, even with a tax cap, increases in taxes for school districts?”

Clarence officials worry that the bill’s positive components might not be enough to balance the negative ramifications for states such as New York in which 1 percent of the taxpayers pay for about 42 percent of the state budget.

While Casilio is in favor of an income tax reduction and tax breaks for small businesses, he believes the SALT deduction must remain untouched if the region is to maintain the economic progress it has enjoyed in recent years.

“There are a lot of other write-offs, offshore accounts and other things that can be handled first,” he said. “SALT should be the last thing they should be addressing if they want to simplify the income tax form.”

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