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Trump’s tax plan would eliminate a major LI deduction

President Donald Trump listens during a meeting at

President Donald Trump listens during a meeting at the White House in Washington, D.C., on March 31, 2017. Credit: AP / Evan Vucci

WASHINGTON — President Donald Trump unveiled a tax plan Wednesday that would eliminate a deduction that heavily benefits New Yorkers — especially on Long Island — and “undermine the state’s tax base,” officials and analysts said.

Under the plan, taxpayers who itemize their returns would no longer get to deduct the amount paid in local and state taxes from their federal taxes, changing a tax policy that benefits high-income, high-tax states such as New York, California and New Jersey. The change would eliminate one of the most popular deductions in New York — some $68 billion is claimed annually.

Trump administration officials touted that a related proposal to double the standardized tax deduction would more than offset the loss of the state/local deduction, ending the need for many taxpayers to itemize their returns. But others would have to pay much more in federal taxes. In Nassau and Suffolk counties alone, outlawing the deduction would result in a $2.5 billion annual hit to the economy, according to the Long Island Association business group.

Republican congressmen from Long Island, who could be key to Trump’s plan winning over members of his own party, expressed support for the president’s call to lower individual tax rates and raise the standard deduction, but voiced opposition to eliminating the state/local deduction.

“That is a direct hit to the Long Island economy,” King said. “It could be devastating. It certainly will be damaging.”

“I am not supportive of eliminating state and local tax deductions,” U.S. Rep. Lee Zeldin (R-Shirley) said in a statement. “It’s imperative that our local residents aren’t subject to double and triple taxation and retain the ability to deduct local taxes and reduce their federal tax bill. Maintaining this should be an important bipartisan priority for our entire region.”

Statewide, the loss of the deduction could worsen an imbalance in which New York already sends more money to the federal government than it gets back, experts said.

“It’s a bullet aimed at the heart of the state’s tax base,” said E.J. McMahon of the Empire Center for Public Policy, an Albany-based, fiscally conservative think tank. “You’re basically going to undermine the state’s tax base.”

The average state and local tax deduction claimed by New York itemizers was $21,038—highest in the nation, McMahon said.

According to the LIA, about 600,000 federal filers in Nassau and Suffolk counties itemize their federal returns and claim about $14 billion in the state/local deductions.

Some of those taxpayers might be better off taking the standard deduction — if it is doubled, as Trump proposed, to $12,600 for individual filers and $25,200 for joint filers.

For the 250,000 joint and individual filers who itemize their returns and report less than $100,000 in adjusted gross income, the tradeoff might be better because they typically claim no more than $13,000 in state/local tax payments.

For those earning between $100,000 and $200,000 (about 227,000 itemized filers on the Island) it’s more of a mixed bag. They claim an average $18,000 in annual state/local deductions and might fair better with the tradeoff depending on their specific local taxes.

But for the roughly 110,000 itemizers who earn more than $200,000, the loss of the deduction would hurt: Currently, they claim an average $59,000 in state/local tax deductions.

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