Tax experts are still trying to understand the impact of the new federal tax reform law which limits deductibility of state and local taxes (SALT), charitable donations, mortgage interest and other traditional deductions. Experts from different sectors impacted by these far reaching tax changes discussed the implications for business, real estate and non-profit organizations on Wednesday at the Business Council of Westchester’s Key Bank Speakers Series at Tappan Hill in Tarrytown.
Keynote speaker Edmund J. McMahon, Founder and Research Director of the Empire Center for Public Policy, said that the changes reflected a “tale of two states,” with the effects varying greatly from upstate to downstate. Downstate residents who have higher property values and higher property taxes are likely to be more severely impacted, while upstate residents with lower incomes and lower taxes are more likely to benefit. He added that dire predictions may be exaggerated as the elimination of deductions may be offset in part by the doubling of the standard deduction and an increase in child tax credits and the elimination of the AMT tax on taxpayers with incomes over $200,000 a year.
“This is also a tale of two narratives,’’ he said. Depending on who you speak with, the tax law either will “create an economic boom that has never been seen before” or is a “missle aimed at the heart of New York State,” he said. The truth, he said, is “somewhere in between.”
McMahon said that those hardest hit would be property owners with mortgages of between $750,000 and $1 million and empty nesters who will not benefit from increases in the child tax credit. He said while there is no rule of thumb, most Westchester couples with two children could actually see their taxes go down between 1 and 9 percent, but those in higher tax communities like Briarcliff, Chappaqua and Pleasantville could see an increase of 3 to12 percent.
He added that a proposal by Governor Andrew Cuomo to institute a payroll tax to allow employees to bypass SALT was “a solution in search of a problem,” and that it would present very limited benefits to taxpayers on the higher end of the income spectrum.
Joseph Rand, Chief Creative Officer, Better Homes and Gardens Real Estate | Rand Realty, said that while the real estate sector would be the hardest hit as a result of tax reform, the hit has come at a good time since the industry is doing very well. He said that while some might be discouraged from buying new homes because of the loss of mortgage deductibility, homes were actually at their most affordable since 1981 making it an attractive investment. He said the current seller’s market has also created the lowest inventory of homes for sale, making home purchases competitive. “If we were ever going to do this, now is the best time,’’ said Rand.
Mark R. Baran, JD, LL.M., Principal, Tax Practice, Marks Paneth said businesses would get an immediate shot in the arm from the tax reform as a result of the tax rates dropping from 35 to 21 percent. He said that an additional benefit of deductibility for purchases this year will help to boost the economy as businesses take advantage of this with a spending spree on capital improvements.
Alana Sweeney, President and CEO of the United Way of Westchester and Putnam, said tax reform could have dire consequences for smaller non-profits who rely on smaller donations, which are forecast to drop significantly with the lack of deductibility. She said non-profits stand to lose $146 billion according to the Lilly School of Philanthropy. Sweeny added that non-profits may need to shift focus to target corporations who may be more open to giving as a result of the tax windfall.