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Cuomo weighs overhaul of income tax to avoid fed tax hit

A shift to a payroll tax could help New York get around the new federal limit on the deductability of state and local taxes. But the process is complicated.

New York State Governor Andrew Cuomo being introduced

New York State Governor Andrew Cuomo being introduced by Lieu. Gov Kathy Hochul before giving his State of the State speech at the Empire State Plaza Convention Center in Albany, NY Wednesday Jan, 3, 2018. Photo Credit: Newsday / J. Conrad Williams Jr.

ALBANY — Gov. Andrew M. Cuomo used his State of the State speech Wednesday to raise the possibility of a massive restructuring of the state income tax as a bulwark against the new federal tax law.

Cuomo said only that he is “developing a plan to restructure our tax code to reduce reliance on our current income tax system and adopt a statewide payroll tax system.” He provided no details. Aides said those would come when the governor presents his budget later this month.

Fiscal analysts say they believe Cuomo was trying to get around the tax law passed last month by the Republican-controlled Congress.

That law, signed by President Donald Trump, provides tax breaks for corporations and most middle class families, but it also limits the deductibility of state income taxes and local property taxes to $10,000 on federal income tax returns. That provision will hit many property owners in high-tax New York state, including Long Islanders who already pay some of the nation’s highest property taxes.

If Cuomo is able to substitute part or all of the state income tax with a payroll tax, which remains fully deductible under federal law; a New York taxpayer could save thousands of dollars, according to the few state officials briefed on the concept.

“It makes a lot of sense,” said Assembly Speaker Carl Heastie (D-Bronx).

Senate Majority Leader John Flanagan (R-East Northport) had no details of Cuomo’s plan, but is interested in discussing a way to avoid the federal hit on taxpayers, said Flanagan spokesman Scott Reif.

“I talk with Long Islanders ever day who are petrified,” said Sen. Todd Kaminsky (D-Long Beach). “I think the payroll tax is interesting and I’d like to see how that can be done . . . we can’t take this hit.”

How such a calculation could be done is complicated. Cuomo acknowledged several times that the formula would be complicated to make sure employees collected the same take-home pay and companies correctly estimated the number of employees and their wages and their tax liability.

“It’s certainly one of the creative solutions to the challenge we face, but it definitely needs more analysis,” said state Comptroller Thomas DiNapoli.

California Democrats are considering a similar plan, but few details have yet been released.

“The payroll tax idea is not nearly as simple as it sounds,” said E.J. McMahon of the fiscally conservative Empire Center think tank. “In fact, any attempt to broadly displace the personal income tax with a payroll tax would be fraught with mind-bending complications and virtually impossible to implement.”

“Is it really just a tax shift?” asked Assembly Republican leader Brian Kolb (R-Canandaigua), who is running for governor. “Is it still raising taxes, but in a way to make people feel better? The governor was very divisive himself, blaming Washington . . . with no talk about reducing spending.”

Cuomo also said he is considering “new opportunities for charitable contributions to support public programs.”

“It’s war footing,” said Lawrence Levy, executive dean of Hofstra University’s National Center for Suburban Studies. “By putting the state on a war footing, he has a way to rewrite the tax code in ways other governors could only dream of.”

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