Talk of earthshaking federal tax changes has begun as Republicans consolidate control of the presidency and of both congressional houses.
At least one major proposal, issued by House Speaker Paul Ryan during last year’s campaign, would end deductions for individuals’ state and local taxes.
These deductions tend to benefit homeowners heavily in such states as New York and California, which — as national leaders are aware — largely voted Democratic in the last election.
High-tax regions with higher-income taxpayers, such as Long Island, especially would feel the rumble.
According to a 2015 study by the nonpartisan, pro-business Tax Foundation, Manhattan was listed at number one of what it called the “top 10 counties for state and local tax deductions.”
Nassau was sixth, and Westchester second. Others listed were in New Jersey, Connecticut and California.
The deductions traditionally help offset the strain of expensive services on municipalities’ budgets. It remains to be seen if Donald Trump as president will insist on keeping the deductions.
Another possible shock wave for local governments might be a GOP-proposed elimination of tax exemptions for municipal bonds.
While incumbents are still settling in with no solid deals yet reached, Ryan (R-Wis.) appeared to agree in principle last summer on some broad tax strokes with presidential nominee Donald Trump.
Both would reduce top income-tax rates, eliminate the alternative-minimum tax and increase the standard deduction, it was widely reported last June before Trump was assured of winning the election. They have also backed reducing taxes on investment income and business.
Much was made during the campaign of how well Trump himself could benefit under GOP tax plans. But now the discussion is about everyone, and it is not known how the president-elect will stand on killing deductibility.
Elimination of state and local deductibility was proposed, but staved off, more than 30 years ago during the Reagan administration. That legislative fight featured New York Sen. Daniel Patrick Moynihan touting figures that showed New York sending billions more to Washington than it got back.
Last week The Hill quoted House Ways and Means Committee Chairman Kevin Brady (R-Texas) as saying that he believes there is “merit” to eliminating the deduction while lowering rates.
“The added benefit here is that the federal tax code will no longer subsidize higher taxes at the local level,” he said, while asking for public feedback.