While the title sounds great — The Federal Tax Cuts and Jobs Act of 2017 — the impact of this federal legislation is an arrow aimed at the economic heart of New York and many states because of the limitations placed on their primary sources to fund government and education.
Since the enactment of the 16th Amendment, which allows the federal government to levy income taxes, there has been an unofficial understanding that all state and local taxes have been deductible for purposes of calculating taxable income for federal taxes. In December, the Republican-controlled Congress approved legislation establishing an unrealistic cap of $10,000 for deducting all state and local taxes (SALT). This action was taken with knowledge that New York provides Washington with $48 billion more than it receives in benefits and services (more than any other state in the country) and that we use SALT as the primary funding source for all levels of government and education. For Long Island, one of the most highly taxed areas in the country, this law will have a significant and punitive impact.
In many ways, the federal tax law invalidates the way New York funds government and education. The state funds education primarily through taxes on real property, which are paid solely by those who own principally land and buildings. The state has established programs to help economically challenged areas with greater state aid for education; as a result, local funding in areas like Long Island covers upward of 75 percent of the cost of education through property taxes. With the $10,000 cap on SALT deductions, the federal government penalizes those districts that have provided the most funding for education. Some have argued about the use of property taxes and the fact that the value of a home doesn’t always reflect the financial ability of the homeowners. Seniors and others on fixed incomes or with significant medical costs struggle to pay property taxes. Long Island’s high property taxes make it difficult, if not impossible, for many to own a home.
New York is correct to challenge the new tax law, and the voters will be correct to seek changes in Congress to ensure the act is reformed, but we must also recognize that we are now at a crossroads in governmental and educational funding. The tax burden being placed on homeowners is excessive, and we can no longer consider real property taxes as a primary funding source. Taxes on more than 300,000 homes on Long Island exceed $10,000 each. To ensure the sustainability of the region, we must find ways to provide property tax relief for those districts with excessive residential tax obligations while preserving the quality of life and of education Long Islanders expect.
Now is the time to re-examine how we fund government. We have to be more efficient in the operation of government, and fund government and education with methods that are fair and reflective of the financial ability of the funding source. That includes funding education based on regional costs, and core educational costs that adjust based on regional factors. In the dark of night and at the close of a fiscal year, Congress enacted a federal tax law with little vetting, knowing its negative fiscal impact on many states, and knowing that the changes benefit corporate America more than Americans.
Thanks to this Republican-controlled Congress, we will now pay taxes on our taxes. That is the definition of double taxation.
John Brooks, a Seaford Democrat, represents the 8th District in the State Senate.