The New Tax Bill: Pouring SALT in Our Wounds, or Not So Bad?
Economic guru Edmund J. McMahon discussed the complexities of the new deductibility limits on state and local taxes, or SALT, during the Business Council of Westchester’s Key Bank Speaker Series.
If the ins and outs of the new tax bill seem confusing, you are not alone. During the February 14 Key Bank Speaker series at the Tappan Hill Mansion in Tarrytown, Edmund J. McMahon described just how intricate the new laws are, especially with regard to state and local tax deductions, or SALT.
McMahon, who is Founder and Research Director of the Empire Center for Public Policy, was quick to point out that bill’s effects on the country will not be wholly bad or good, but rather a mixed bag. “One narrative is the triumphalist narrative from the congressional Republicans in the Trump administration that the bill will create an economic boom that will stretch on as far as the eye can see,” says McMahon. “The other narrative, from Governor Cuomo, is that the tax law is a devastating missile aimed at the heart of New York that will be a catastrophe for absolutely everyone in New York State, raising property taxes by thousands of dollars on average…The truth is somewhere in between.”
According to McMahon, some of the notable effects of the bill on New Yorkers include capping SALT deductions at $10,000, eliminating dependent exemptions, a doubling of child credit as well as the standard deduction, and a corporate rate cut to 21%. He also noted that first-time mortgage deduction limits will be capped at $750,000 and that the charitable deduction will remain unchanged.
However, McMahon was also frank about the shortcomings of the new tax law. “I think the tax cut is a mess—it’s an unmade bed, it’s not sustainable, and it’s a missed opportunity to do better things,” he says. “And I thought the repeal of SALT on conservative grounds was a terrible thing because conservatism should be about giving primacy to state and local governments.”
Nor did McMahon attempt to deny that taxpayers within the state might have to wrestle with an outsize burden compared to those in other parts of the country. “The largest ‘pay for’ as they call it in congressional terms for the tax cuts was the elimination of dedications claimed by people in New York, California, Connecticut, New Jersey, and Illinois,” says McMahon. “Those five states are fed the ‘pay for’…so it was politically motived. Reasonable arguments can be made on both sides [for or against the bill], but I happen to be on the side of preserving it.”
McMahon reasoned that the bill would make up for some of its negatives by spurring business growth — at least in the short term. “So the bottom line, is this a catastrophe for everybody, especially those in Westchester? No,” he says. “Even critics of the plan admit that for businesses at the very least it will be a sugar high. Maybe it will be better than a sugar high.”
In a panel that followed McMahon’s speech — which included Joseph Rand of Better Homes and Gardens Real Estate and Rand Realty, Mark R. Baran of Marks Paneth, and Alana Sweeney of the United Way of Westchester and Putnam — the fallout and complexity of the tax bill was also discussed, with each of the panelists expressing a mix of optimism and exasperation.
BCW president and CEO Dr. Marsha Gordon agrees that while the effects of the bill may not be wholly clear, the law won’t be apocalyptic for Westchester taxpayers. "I think the lesson to be learned is that we really don’t know yet,” commented Gordon to 914INC. “The real effects remain to be determined, but there was not a sense of panic in the room as to the new SALT legislation and it and really gave [the audience] a new perspective and some tools to plan as we move forward for 2018.”