The Independent View: NY Optional Payroll Tax Plan

New York Gov. Andrew Cuomo’s Budget Office has unveiled his proposed Payroll Tax, an Optional Tax that can be paid by Businesses as a workaround for a $10,000 Cap on State and Local Tax Deductions (SALT) at the Federal Level, which would be phased in over the next several years.

If adopted, this Tax won’t give New York any New Revenue, but is designed with the Goal of Saving Businesses Money. It would also sit alongside the Existing Personal Income Tax, which is the Primary Revenue Driver for the State Government.

The Proposal was one of several Expanded Measures outlined in Cuomo’s 30-day Budget Amendments released today, several days before they were due on Feb. 15th.
“We need to give individuals clarity,” Budget Director Robert Mujica said at a News Conference. “They want to know what their tax bills are going to be, what their opportunities are because they’re adjusting now. We saw in January people pre-paying their property taxes. We know state revenues were coming in people were pre-paying their income taxes.”

Under the Proposal outlined this morning, Businesses can Voluntarily Opt-In for the Tax by an Oct. 1st Deadline. Employers would be subject to a 5% Tax of Payroll Expenses above $40,000 Per Worker once the Plan is fully phased in. The Program would be formally phased in over the next Three Years, starting January 2019, with a 1.5% Tax excised in the First year, growing to 3% the following year. This would move the New York State Tax to the Employer to Pay. But this brings the question: will companies reduce an Employee's Salary by the State Tax they now Pay to the State?

Cuomo is also pushing to expand Charitable Deductions for Taxpayers in New York that could let them Recover from the Federal Cap on Deductions, a move that follows the Broad Outlines being considered by California Officials, another High-Tax State that is reacting to the SALT Cap. Under that Plan, Two Charitable Contribution Funds that can accept Donations to Health Care and Education Programs. Taxpayers who Itemize can Claim these as Deductions for both their State and Federal Tax Forms and a State Filer can Claim a Tax Credit equal to 85% of their Donated amount within the Tax year.

Cuomo is also moving to Sue the Federal Government over the Tax Law that was Approved in December, part of a Multi-Part Push Back against the Law he contends has Unfairly dinged Democratic-Dominated States. It’s not clear if Cuomo will be able to convince Skeptical Lawmakers to have this done in the Budget. Republicans have generally been Leary of the Payroll Tax Proposal, but have also Acknowledged they are Dissatisfied with the SALT Cap.

For now, the Business Council is taking a wait-and-see approach. “We appreciate that the Executive has been engaged with the state’s employers in reviewing these impacts and in evaluating mitigation options. We will be reviewing draft legislation included with the Governor’s 30-day amendments, including the proposal for an employer opt-in to pay a new payroll tax,” said Business Council President Heather Briccetti.

“Employers will have to carefully consider the shift of tax liability and administrative costs when evaluating this election. The creation of a charitable contribution mechanism is more palatable to the state’s business community, but its value will depend on IRS deductibility. We are also very pleased to see the state will decouple from federal personal income tax provisions in areas where inaction would lead to further tax increases on New Yorkers. We urge the state to do likewise in regard to the corporate franchise tax. The Council also continues to emphasize that, with multi-year, multi-billion budget deficits, New York needs to more fully examine its spending practices, especially in major programs such as Medicaid and education, and determine why are our costs are so much higher than other states without the results to match.”