U.S. Sen. Charles Schumer
(D-N.Y) says California and New York would be the biggest losers under a proposal he said the Bush Administration is bringing forward to eliminate federal income tax deductions on taxes paid to state and local governments.
He did not estimate in a Jan. 19 speech to the Association for a Better New York how much California would lose, but said
in his own state the proposal would take "$37 billion out of the pockets of New
Making people pay federal taxes on money they already have paid out in state and local taxes is a "tax upon a tax," Schumer said.
"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," he said. "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 removal of the deductions will be "disastrous" for the State of New York, Schumer declared.
"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," said Schumer. "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."
Schumer, a member of the Senate Finance Committee, gave four illustrations of the proposal's possible effects:
"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," he said.
"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," Schumer said.
"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."
The Senator said "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."
Schumer called on Republican Gov. George Pataki of New York to join him in leading the opposition to the expected Bush administration proposal.