Schumer Calls for Major NY-Based Effort to Block Proposals Eliminating State & Local Income Tax Deductibility
SCHUMER CALLS FOR MAJOR NY-BASED EFFORT TO BLOCK PROPOSALS ELIMINATING STATE & LOCAL INCOME TAX DEDUCTIBILITY
Calls on Governor Pataki to take the lead in standing up to Bush White House's proposal to balance budget on the back of blue state residents
Calls effort "dagger at the heart of New York" - new data shows will cause giant sucking sound, taking $37 billion out of the pockets of New Yorkers
Using 1986 success as model, Schumer calls on New York business, labor, hospitals and universities to make this a national crusade
On his way to Washington for his first Senate Finance Committee meeting on Wednesday morning, US Senator Charles E. Schumer today gave the keynote address to an Association for a Better New York breakfast, where he called for a major New York-based effort to block the Bush Administration's expected proposal to prevent some3.2 million taxpayers in New York from being able to deduct the state and local income taxes they pay on their federal income taxes - which would cost individuals in New York some $37 billion.
Specifically, Schumer called on Governor Pataki to take the lead in standing up to the Bush White House on this proposal. Schumer rolled out this effort at ABNY, which led the fight against a similar attempt in 1986, and asked the ABNY members to enlist their business, labor, hospitals and university colleagues from coast to coast to make this a national crusade.
Schumer will also wore a new "Moynihan-style" hat recently given to him by the late Senator Daniel Patrick Moynihan's wife, Elizabeth. When Senator Moynihan was the last New Yorker on the Senate Finance Committee, he was well-known for wearing his trademark Brooks Brothers tweed hats, which were purchased for him by his wife. When Schumer was named to Moynihan's old seat on the powerful Finance Committee, his friend Mrs. Moynihan sent him a hat of his own.
The prepared text of Schumer's remarks follow:
SENATOR CHARLES E. SCHUMER
Remarks at ABNY Breakfast, January 19, 2005
I want to thank ABNY for inviting me here this morning.
As most of you know, I am a new member of the Senate Finance Committee. We're going to face a number of important challenges on that Committee over the next few years, given President Bush's objectives to reform the tax code and remake Social Security.
I'm looking forward to working with all of my colleagues from both parties on the Committee, because it's where the action is going to be - and as all of you know, I like to be where the action is.
I want to spend a few minutes this morning talking about an issue that is of the utmost importance to New York. That issue is the deductibility of state and local taxes on federal income tax returns.
As some of you may have heard, President Bush is likely to propose repealing the deduction as a way to offset the costs of his tax reform plan. He and his advisors may be thinking that repealing the deduction is an issue of concern only to high-income people in a couple of big, high-tax, Democratic-leaning, so-called "blue" states, but they're wrong: Repealing the deduction will have a major impact on people at all levels of income, from working families of modest means to the very wealthiest people in America.
It will have an impact on every states' ability to fund important social services like education - even in big, Republican-leaning "red states" like Florida and Texas, which don't have an income tax but benefit from the deduction for sales taxes that was added back to the tax code just last year. So it's not just a "blue state" issue, although they would be hurt the worst - and frankly, some in Washington want it that way. In reality, it hurts the "red states," too.
You may recall that nearly 20 years ago, another president proposed eliminating this deduction. Well, let me tell you straight out, even though it would have repercussions across the nation, this is a dagger aimed right at the heart of New York. It will set our state back in a number of ways.
It will create a giant sucking sound as the best and brightest workers, and the most productive companies, face incentives to tear up long-standing roots and move to lower-tax jurisdictions. New York's economy is finally rebounding, but employment in important sectors like finance is still flat, and repealing the deduction will minimize any chance of a turnaround there.
It will crush budgets at both the state and local level as officials face pressures to slash spending, which will hurt our teachers, police, and firefighters - let alone the poor, who are already squeezed as it is. You can't eliminate $37 billion in tax deductions and not have some impact on the state and local governments that pay our teachers and first responders and nurses and doctors and hospitals. It will cause a budget crisis that is far worse than what we've experienced since 9/11.
It will make it less likely that entrepreneurs will set up shop here in New York, costing many thousands of jobs down the line, because these smart people won't want to locate where taxes are rising and services are declining.
It will make it even harder for the middle-class families that are the lifeblood of New York to keep their homes here, as their taxes rise by 5 or 10 or 15 percent in one fell swoop. And it will also sock it to the rich, of course, particularly here in New York City, where people with incomes over $200,000 will see their federal taxes rise on average by more than 20 percent.
I'll go through some more numbers in a minute, but it's pretty clear that this idea is an absolute killer for New York.
We have to stop it dead in its tracks, with no compromises, and we have to start working now. I'm going to talk a little bit about how to do that, and about how ABNY played such a major role in that effort back in 1985 and 1986.
Most people don't know this, but the deduction for state and local taxes dates all the way back to the Revenue Act of 1913. We've just begun the 109th Congress, and it was the 63rd Congress that added this deduction to the Code. It's not some new subsidy or preference that was recently added in a smoke-filled back room in the dead of night. It's been there from the very beginning of the income tax. The Congress realized back then that a tax on a tax was inherently unfair, the pundits of the time agreed, and Democrats and Republicans alike have supported it.
The "tax on a tax" theme is particularly interesting, given how conservatives in Washington are trying to reshape the tax code.
Economic conservatives say that they hate "double taxation," and they wanted to eliminate the individual tax on dividends, a change that many in this room supported two years ago. They succeeded in reducing the tax rate to 15 percent, and now they want to permanently repeal the estate tax, arguing that the assets in many large estates have already been taxed.
But what many conservatives today really object to are some forms of double taxation when it suits their agenda, particularly when it's related to investment income. Many in Washington now believe that any income from savings and investment shouldn't be taxed at all, leaving the entire tax burden to be borne entirely by earned income, which disproportionately hurts the middle class, from the upper-middle class all the way to the working poor.
Well, what about taxing labor income under both the payroll tax and the income tax, which hurts most working families? That's by far the biggest form of double taxation, yet many conservatives aren't bothered by it, and I haven't seen the President propose a deduction for payroll taxes paid.
The state and local tax deduction is another example. Eliminating the deduction creates a huge tax on a tax, or "double tax," for millions of Americans. Money used to pay state and local taxes is not available to pay federal taxes, so to include those taxes in one's income creates a tax on a tax. That's double taxation. And it's why the lobbying group ABNY spearheaded to defeat this bad idea 20 years ago was called the Coalition Against Double Taxation.
We should be against all forms of double taxation where it really occurs, whether the issue is dividends, payroll taxes, or the state and local deduction. We should be clear and consistent.
So let me clear and consistent: Protecting the federal deduction for state and local taxes is my Number One Priority as a new member of the Finance Committee. The fight for homeland security money will be nothing compared to this fight, and I will work day and night to make sure that the Bush Administration does not succeed in eliminating a deduction that more than three million New Yorkers count on.
As I said, if the president pursues this plan, New Yorkers would lose about $37 billion per year in federal tax deductions, more than any state except California. It will hurt households at all levels of income. Let's look at some examples.
Consider a married couple from Staten Island with taxable income of $50,000, smack-dab in the middle of the middle class. If they own a home worth $200,000, they face a property tax bill of about $1,800 and pay about $4,300 in state and city income taxes. Eliminating the deduction will cost them more than $900 in higher federal taxes.
Or a family from Jamestown with $75,000 of taxable income, paying $3,200 in property taxes and about $4,000 in state income taxes. Their taxes would go up by $1,800.
Or take a family in what might be called the upper middle class. Chris Hahn is my regional rep for Long Island; he lives in Setauket. His family earns about $150,000 and pays about $11,000 in property taxes and $11,300 in state income taxes. Eliminating the deduction will cost his family almost $5,600. That's a huge tax increase.
New York City residents would be especially hard-hit. Repealing the deduction would raise taxes for almost 700,000 City households and would cost them an additional $3.25 billion in higher taxes in 2005, an average increase of $4,700. More than half of those households have incomes below $75,000.
In all, around 2.5 million New York households with incomes under $100,000 take the federal deduction for state and local taxes. On average, these folks would lose the ability to deduct a whopping $5,600 a year. For a two-earner family in the 25 percent tax bracket, that's a tax increase of $1,400. In other words, eliminating this deduction would cost the average middle-class family in New York 1.4 percent of its income.
It also kills what might be called the working class - folks who aren't poor, but are really struggling to make ends meet here in New York, and who want to stay in our state. About 170,000 households in New York City with incomes less than $40,000 a year would see their federal taxes go up by an average of $468 - an increase of more than 20 percent!
So many middle-income people would be hit because they have seen their home values increase, leading to higher property taxes. The fact that they can deduct this higher tax bite makes the property tax a little bit easier to swallow for the person of modest means, whose only real asset is their home. We shouldn't make it harder for these families to make ends meet.
Middle-class families would be hurt in another way: The value of their homes would decline as the demand for housing drops, particularly in jurisdictions like New York where deductions are so important. Most middle-class families have so little income saved as it is, and their homes are their only valuable asset. We shouldn't take their savings away from them, but eliminating this deduction is tantamount to doing just that. It's wrong.
But let's be fair: This proposal really socks it to the rich as well. It's not another reverse-class-warfare proposal that only hurts the middle class.
According to an analysis in the Times, about 219,000 households in the state with incomes over $200,000 take the deduction. (An income of $200,000 puts you in the top two or so percent of households nationally.) These folks would lose the ability to deduct about $67,400 on average. If you're in the top tax bracket, right now 35 percent, that's a tax increase of over $23,000. That's a pretty big reason to move somewhere else.
Now, the Bush Administration may decide that it's OK to raise taxes on millions of New Yorkers in order to pay for more of its tax agenda.
But we can't allow it to happen, and that's why we need to remember how ABNY helped mobilize wide-ranging forces 20 years ago, and how we need to join forces again. New York started on the offensive before President Reagan formally made the proposal, and we would be foolish to wait this time.
As all of you know, the late Lew Rudin, who did such a magnificent job as the founder of this group, led the effort, along with civic leaders Jimmy Robinson and David Rockefeller. They helped build a coalition led by the private sector, with help from the real estate industry, labor unions, and others. The National League of Cities, the A.F.L.-C.I.O., the American Federation of Teachers, the National Association of Counties, and the National Governors Association were all involved. Everyone pitched in. There was a shared understanding of how repealing the deduction would put our great City at a competitive disadvantage.
ABNY's coalition turned it into a national issue, raising millions of dollars for print and broadcast ads to be run in key districts, lobbying members of the Ways and Means Committee, and commissioning an study that showed the destabilizing effect repeal would have on states across the country. I remember Governor Cuomo's eloquent testimony before Congress, and Jacob Javits, whose health was failing him at the time, getting deeply involved in the effort. I'll never forget it.
Another little-known fact is that it was the Governor of Arkansas, a young man named Bill Clinton, who also worked to defeat the proposal when he saw the impact it would have on some of the smaller Southern states, who were - and still are - having trouble adequately funding their schools.
In the end, even though Dan Rostenkowski - the powerful Democratic Chairman of the Ways and Means Committee at the time - supported President Reagan's proposal, the coalition led by ABNY beat the Chairman on his own committee. It was a major victory that required a creative, well-organized, and well-funded lobbying effort.
Well, my friends, we need to do the same thing again. The business community and others need to start thinking now about how we will defeat it this time.
We can't wait until President Bush puts a specific proposal on the table before we swing into action, because victory will be more difficult in 2005 than it was in 1986 for several reasons. First, the President's party controls both houses of Congress, and his allies are more ideologically rigid than they were 20 years ago. Second, and potentially more important, in 1985, when President Reagan proposed an overhaul of the tax code, many major deductions were on the table. Even the biggest one, for home mortgage interest, was on the chopping block, as the Reagan Administration wanted to broaden the base and lower rates as much as possible. ABNY's coalition was able to make common cause with other groups that were defending the other provisions, and that was a key to our victory.
This time, however, the state and local tax deduction stands alone, with a target on its back. The other big ones, such as mortgage interest and charitable contributions and employer-provided health insurance, have already been taken off the table. The state and local deduction is the cash cow the Bush team is looking at to fund a lot of what they want to do. This will make our job a lot harder.
As a result, the New York business and labor interests can't be complacent, because we have seen that this Administration is relentless when it comes to pursuing its objectives. They will stop at nothing, and neither will we. New Yorkers need to start working today make sure that the deduction stays on the books, as it has for 91 years. ABNY - as well as the other leadership groups in New York, such as the Business Partnership, the Real Estate Board, the state A.F.L.-C.I.O., and many other groups - needs to help pull everyone together to replicate this effort, but they can't do it alone. I call on everyone in the state to do their part.
This week, I am starting to do my part. I have called Governor Pataki, and asked him to get involved in this effort. Governor Cuomo went to the mat for us 20 years ago, and the current governor needs to do the same - even if the President is from his own party. This issue is too vital to New York for the governor - or any elected official, Democrat or Republican - to cozy up to anyone. Governor Pataki needs to get out there in a vocal way to fight for the families and businesses of this state.
I spoke with Governor Pataki last night, and we had a brief, but good, preliminary conversation. I am hopeful he will rise to the challenge.
I have also called Senator John Breaux, a former senator that the President respects, and who has just been named to co-chair a bipartisan tax reform commission, and lobbying him to urge the president not to formally propose this change. He said he would consider doing that.
But a few phone calls are not going to do the job. Every one of us has to do our share. A good place to start is the 1985 model. First, every major group in New York must mobilize - the business community, labor unions, the real estate industry, property owners, everyone. We also must have with us all of the groups that represent charitable organizations, like hospitals and the arts and the foundation sector. While these groups don't need to take the deduction, the vitality of our city will be dealt a serious blow if the deduction is repealed, and they have good reason to join our cause.
Second, as was done in 1985, we will ask each of these groups to reach out to similar groups across the country. The New York Chamber should work with the Chambers from Ohio and Virginia and California and Pennsylvania. The local labor unions should join forces with parallel groups in New Jersey and Maryland and Arkansas. We must make this issue a national call to arms. It may affect New York and California most, but it will increase taxes on millions and million of taxpayers in nearly every state.
And finally, we all know that large numbers of senators and representatives come to New York to raise money. We are asking every one of these groups that help Members of Congress raise money to ask each legislator who comes to New York what their position is on the issue of state and local deductibility, and take that position into account.
In short, everyone needs to do everything in their power to see that this proposal to increase "double taxation" never becomes law. Just as we did in 1985, we're going to make this a national issue, and with ABNY's leadership, we're going to win.
Two other quick points before I leave you. One is related.
First, the individual Alternative Minimum Tax, or AMT, also affects New York dramatically because it affects how many deductions people can take, and thus it impacts a lot of people in our state. We need to address the AMT, which is trickling down to catch more and more middle-class families in New York. If we fail to act, then nearly all two-earner families with children with incomes over $75,000 will get snagged by the AMT by the year 2010.
A family earning $75,000 or $100,000 is not a wealthy family in New York, and they shouldn't get snagged by a tax that was originally designed to make sure that wealthy people didn't completely escape the tax system. At $75,000 or $100,000 of income, you're not a wealthy person in New York, and we can't allow these middle-class families to get caught in the AMT.
I urge the President to work with Congress to reform and simplify the AMT. Frankly, dealing with it should be a higher priority than making all of the President's tax cuts permanent, because millions of middle-class families will lose the tax cuts they've recently received if we fail to act.
Thank you very much.
http://schumer.senate.gov/SchumerWebsite/pressroom/press_releases/2005/PR40075.ABNY11905.html