The new federal tax law is good news for New York, which bears a disproportionately heavy share of the federal tax burden. But while it rests on a solid foundation of broad-based tax relief very similar to what President George W. Bush proposed, the tax cut bill enacted by Congress left a tangle of loose ends.
With its high average household incomes, the Empire State will be a major beneficiary of the across-the-board tax rate cuts that are due to be fully phased in by 2006. New Yorkers also will benefit from the scheduled elimination (by 2010) of existing limits on itemized deductions and exemptions in upper income brackets.
According to a Manhattan Institute analysis:
- New York State households will save about $89 billion in federal income taxes over the next 10 years. More than three-quarters of the savings will flow to taxpayers in New York City and the surrounding seven-county suburban region in the state.
- By September 24, New Yorkers will have received a total of $2.5 billion in "advance payment" checks representing the first installment of the tax cut of which $1 billion will flow to residents of New York City, $390 million to Long Island, $259 million to the city's northern suburbs, and $848 million to upstate counties.
- Starting in 2005, the income tax cut's value for many New Yorkers will be undermined to an increasing extent by the Alternative Minimum Tax, or AMT. If the temporary AMT relief provisions in the new tax law were extended beyond their scheduled sunset in 2004, New Yorkers would save an additional $26 billion over the next 10 years.
When the tax cut inevitably is reopened for further tinkering within the next few years, New York State's top priorities should be obvious:
- Follow through on all scheduled income tax rate reduction'preferably speeding up and deepening the rate cuts'and on the phase-out of current caps on deductions and exemptions.
- Repeal the AMT.