Real estate values are predicted to drop 10 percent and possibly more because of a $10,000 cap on deductions for property, sales and income taxes.
December 16, 2017
WASHINGTON — In less than two weeks, Long Islanders most likely will be forced to cope with an almost totally new federal tax code, one that even Republican congressional tax writers behind the legislation acknowledge creates winners and losers.
Long Island overall loses big, say local business leaders, lawmakers and economists, because the bill eliminates the full deduction for state and local taxes, called SALT — which is why every member of Congress who represents the island said they will vote no on the bill Tuesday.
“While there may be a few winners, the majority of Long Islanders will pay more federal taxes as they will no longer be able to deduct all their state and local taxes,” said Kevin Law, CEO of the pro-business Long Island Association.
Republican leaders, however, expressed confidence they will pass the final version of the 500-page, $1.5 trillion bill, which they made public for the first time Friday evening, and send it to President Donald Trump to sign into law before Christmas.
The many big and small changes in tax code that are littered throughout the complex legislative language of the bill — and their effect on taxpayers and communities — are still not fully understood by lawmakers, economists or accountants.
Does anybody grasp the full impact?
“Nobody does, and that’s what so frightening about it,” said Suffolk County Comptroller John Kennedy. “I guess we’re just going to have to take a deep breath and do the best we can as we get into 2018.”
Here is a sampling of the tax bill’s winners and losers on Long Island.
Corporations. Henry Schein, Long Island’s largest publicly traded corporation, now pays an effective tax rate of 28 percent. But next year the top corporate rate will be 21 percent, down from 35 percent. In addition, Schein can also bring back $937 million in overseas profit at a lower rate — 15.5 percent for liquid assets and 8 percent for illiquid assets.
Wealthier taxpayers. Nassau and Suffolk are among the wealthiest counties in the state, and those making $500,000 or more will see their top rates tumble to 37 percent from 39.6 percent. The wealthiest will see the exemption for their estate taxes doubled to $11 million.
Other taxpayers. Each of the seven tax brackets has a rate cut, although the lower taxes diminish over time — and many middle-income filers will see their taxes go up. All individual rates expire after 2025.
Families with children and illnesses. For each child, a family will get a $2,000 tax credit, twice the current rate, and $1,400 would be refundable. And medical expenses over 7.5 percent of adjusted gross income can be deducted for this year and next year, but then returns to 10 percent.
Investors and small businesses. Long Island’s many small businesses and investors are expected to benefit from a 20 percent deduction for pass-through income.
Apartment complexes. More people could rent to avoid state and local taxes on homes.
“Rentals may become more desirable than homeownership when we lose some of these deductions,” said Paul Llobell of Great River, the Long Island Board of Realtors legislation committee chairman. The Census Bureau estimates homeowners now occupy about eight of 10 housing units. A shift could lead to construction of more apartment buildings.
Homeowners. Real estate values are predicted to drop 10 percent, and possibly more, said Llobell, because of the cap of $10,000 on deductions for property, sales and income taxes. Across New York, he said, 46 percent of homeowners pay more than $10,000 in property taxes.
First-time buyers. “Affordability is paramount for young buyers,” Llobell said, but they might decide not to buy if they cannot justify higher home prices and taxes on Long Island with fewer deductions on their federal income tax. They might rent or leave Long Island instead.
Retirees and the elderly. With a drop in real estate values, many retirees and elderly will have to adjust their retirement plans if they used their homes as nest eggs but the real estate turns out to not be worth what they thought it would be, Llobell said.
School and other taxing districts. Capping SALT will boost pressure to lower property and state income taxes, said Rep. Lee Zeldin (R-Shirley).
Donald Leistman, an Association for a Better Long Island board member, said school districts and other districts will be forced to cut, curb or consolidate services as taxpayers look to lower the local tax burden.
Public debt refinancing. Suffolk County has saved $29 million in interest from using advanced refund bonds to refinance older bonds, said Kennedy, the comptroller. But the tax bill takes away that option. “It escapes me why Congress would do this,” he said.
Transportation and roads. With lower local tax revenues from reduced real estate values, elected officials will look for service cuts. “One of the first things they strike out at is transportation,” said Marc Herbst, executive director of the Long Island Contractors Association. That includes repairs and new roads.
Overall, Zeldin said, New York loses as other states gain.
“This bill remains a geographic redistribution of wealth, taking extra money from a place like New York to pay for deeper tax cuts elsewhere,” he said. “This bill chooses winners and losers in a way that could have and should have been avoided.”
What’s in the bill
Before Republicans from the House and Senate could send a nearly $1.5 trillion tax overhaul to President Donald Trump, they had to reconcile their differences. Here is where they ended up on some of the key aspects and contrasts of their final bill.
Keeps seven brackets, reduces top rate to 37 percent.
Doubles those levels to more than $12,000 for individuals and $24,000 for couples. The standard deduction is used by about 70 percent of U.S. taxpayers. It is currently $6,350 for individuals and $12,700 for married couples.
STATE AND LOCAL TAX DEDUCTION
Keeps the cap at $10,000, but allows individuals and families to choose among sales, income and property taxes.
No change for homeowners with existing mortgages, and allows deduction for interest up to $750,000 on a new home mortgage.
Doubles per-child tax credit to $2,000. Begins to phase it out for families making over $400,000. Preserves adoption tax credit.
Eliminates the current $4,050 personal exemption. The loss of an exemption for each household member could have a major impact on families with two or more dependents (children or elderly adults), resulting in higher taxes, depending on other household factors.
INDIVIDUAL INSURANCE MANDATE
Repeals the requirement in Democrat Barack Obama’s health care law that people pay a tax penalty if they don’t purchase health insurance.
Retains the estate tax, but doubles the exempt amount to $10 million.
Millions of U.S. businesses “pass through” their income to individuals, who then pay personal income tax on those earnings, not corporate tax.
Owners of pass-through businesses can deduct up to 20 percent on earnings.
Lower corporate tax rate to 21 percent. Expand write-offs allowed for companies that buy equipment.
“Modernizes” the “worldwide” tax system to eliminate double taxation. Eliminates the corporate alternative minimum tax. Eliminates tax incentives that encourage some U.S. companies to move overseas.
Sources: Tax Policy Center, Congress