COUNCIL URGED TO PUSH FOR AMT, INVESTOR TAX RELIEF
Extension of alternative minimum tax (AMT) relief provisions and reduced tax rates on dividends and capital gains should be viewed as New York City's highest federal legislative priorities as Congress heads towards its holiday recess, according to City Council testimony delivered today by E.J. McMahon, Manhattan Institute senior fellow for tax and budgetary studies
Originally targeted at a handful of wealthy taxpayers, the AMT in recent years has increasingly affected households that are middle-class by New York standards - because, among other differences, the AMT disallows dependent exemptions and deductions for state and local taxes. Temporary provisions preventing the AMT from ensnaring many more taxpayers are due to expire in 2006; if this happens, it is estimated that over a half-million more city taxpayers will experience a federal tax increase.
Preferential tax rates on dividends and capital gains were adopted in 2003 but are scheduled to expire in 2008. A two-year extension of the cuts was approved last week by the House of Representatives, but has met with more resistance in the Senate. The two houses have passed separate bills extending the AMT "patch" for at least a year, but they would have to agree on the same bill before it could become effective.
McMahon said the City Council should urge U.S. Senators Charles Schumer and Hilary Clinton to support both AMT relief and investor tax cuts.
"These tax cuts have played an important role in New York City's economic recovery over the last two years," he said. "Their continuation will be equally important to the city's economic future."
New York City residents had saved $16 billion as a result of federal tax cuts from 2001 through 2004, and would save $46 billion more through 2010, according to McMahon. "Reductions in dividends and capital gains tax rates contributed to a strong rebound in stock prices in 2003, providing a shot in the arm to the City's vitally important financial sector," he said. "The acceleration of marginal rate cuts also offset large temporary hikes in New York State and City income tax rates, which took effect at the same time as the 2003 federal changes."
McMahon spoke at a public hearing on a proposed Council resolution rejecting a proposal by the president's advisory panel on tax reform to eliminate state and local tax deductions and the mortgage interest deduction. His full testimony is posted at www.manhattan-institute.org.
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