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NY Senate Leader Flanagan gives payroll tax idea cold shoulder

The East Northport Republican questions whether the tax plan would be welcomed by employers and employees.

State Senate Majority Leader John Flanagan (R-East Northport)

State Senate Majority Leader John Flanagan (R-East Northport) in Albany on Jan. 9, 2018. Photo Credit: Hans Pennink

ALBANY — The state Legislature’s top Republican on Tuesday threw cold water on Gov. Andrew M. Cuomo’s proposal to shift the state revenue base from income taxes to payroll taxes.

Senate Majority Leader John Flanagan didn’t call the proposal dead. But he said he opposes the concept, questions whether it would be welcomed widely by employers or employees, and doubts lawmakers, even if inclined to go along with the governor, could produce an acceptable framework by April 1, the beginning of New York’s fiscal year.

“My visceral reaction is I think all of our colleagues are opposed to it,” Flanagan (R-East Northport) said at a state Capitol news conference, surrounded by other Republicans. Referring to the unpopular MTA payroll tax imposed right after the 2008 national economic meltdown, he said the idea of a payroll tax “makes my head spin.”

A spokesman for Cuomo didn’t directly address Flanagan’s comments, but he criticized Flanagan for supporting President Donald Trump, “who is hostile to New York values.”

Outlining Senate Republicans’ overall state budget strategy, Flanagan also called for cutting almost $1 billion in taxes on energy, manufacturing and small businesses and ending the controversial business incentive program Start-Up NY, which he called ineffective.

But other than cutting $44 million in Start-Up NY advertising, Flanagan didn’t spell out how he’d reduce spending to offset the tax cuts.

On Monday, Cuomo officials presented the governor’s proposal to help some New Yorkers offset a new limitation on federal deductions for state and local taxes. Cuomo’s plan would eliminate income taxes for individuals and shift to withholding money for payroll taxes collected by employers.

The concept is that employees would break even on take-home pay but reduce the amount of taxable federal income, thereby reducing their tax liability. Businesses would get a state tax credit to offset the payroll tax and be able to deduct the amount from their taxes.

Cuomo also proposes having individuals stop paying property taxes for schools and instead pay an equivalent amount to a “charitable” education fund to pay for local schools, an idea endorsed by some legislators.

But both plans would be voluntary. Analysts and business groups questioned how many employers would go through the process of completely overhauling payroll. Some school officials also expressed concern about their ability to establish and run such charitable funds.

Further, the U.S. Treasury Department has signaled it would be skeptical about some of the tax workarounds New York and other states are considering.

“We think we are living within the structure of the law,” Cuomo budget director Robert Mujica told reporters Monday.

Cuomo’s proposal isn’t in writing yet. His budget division plans to include it as part of the governor’s proposed amendment to the state budget on Thursday. The governor and lawmakers are supposed to adopt a spending plan by April 1.

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