WASHINGTON — President Donald Trump’s budget director on Tuesday put the blame squarely on New York for the economic damage it expects if Congress passes Republican tax legislation that strips away most or all of the state and local tax deductions.
Mick Mulvaney, director of the Office of Management and Budget, said he feels confident that Congress will pass the tax overhaul with that deduction ended, despite a revolt by Northeast Republicans, including Rep. Peter King (R-Seaford) and Rep. Lee Zeldin (R-Shirley).
And he rebuffed Gov. Andrew M. Cuomo for his complaint that the end of the state and local tax deduction would ratchet up federal taxes and drive away wealthy New Yorkers, forcing the state to make up lost revenue by raising taxes on less wealthy taxpayers.
“Whose fault is that? Is it the federal government’s fault that New York taxes are so high that they’re driving people out of the state?” Mulvaney asked as he met with reporters just days ahead of a planned vote Thursday on the House Republican version of the tax overhaul.
“Even with the federal deduction [for state and local taxes], people have been leaving New York — high-income folks have left already,” he said. “So I don’t think it’s up to the federal government to save New York from its bad decisions.”
Mulvaney, a former congressman from South Carolina, which has lower taxes than New York, also said that “it is simply not fair, it’s not right, that the folks who live in the low-tax jurisdictions are actually subsidizing the folks that live in the high-tax jurisdictions.”
New York politicians from both parties pushed back on Mulvaney’s arguments.
“I’ll make it simple: Just give New York the $48 billion we send to Washington that makes us the number 1 donor state in the nation and he and the president can do whatever they want with state and local tax deductibility,” Cuomo said in a statement.
King cited a Tax Foundation report that said South Carolina gets back $1.35 for every federal tax dollar it sends to Washington, but New York gets a return of 79 cents on each dollar. “The fact is that states like South Carolina are living off New York,” King said. “Is that fair?”
Zeldin called New York, and his district, a “net contributor” to the federal government.
“Look at the Highway Trust Fund as just one of many examples,” Zeldin said in a statement. “The Town of Brookhaven has 2,100 miles of road, but all of my district has 21 miles of interstate, yet we pay into the Highway Trust Fund just like the rest of the country.”
He added, “It is factually inaccurate to claim New York is being subsidized by low-income states after analyzing both federal tax policy and spending policy.”
King added that Mulvaney should also honor federalism, which allows New York, South Carolina and all states to tax at the level that their lawmakers think necessary.
And King said Mulvaney should recognize that federal taxes on the state and local taxes individuals and households have paid is double taxation.
But Mulvaney already had brushed off those arguments as he made a case for tax policy that he acknowledged will damage high-tax states.
“The system is not set up so that states get back the same amount of money they put in,” Mulvaney said, rejecting the idea of comparing what federal services or benefits a state’s taxpayers will get in return for the federal taxes they pay.
And he rejected the notion of double taxation. “No, we’re only taxing you once. Somebody else just happens to be taxing you, but we’re only taxing you once.”