TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, January 19, 2018

NY Times: Saying You Want To Reform the Tax Code? Easy. Doing It? Less So.

New York Times, Saying You Want to Reform the Tax Code? Easy. Doing It? Less So.:

It read like a maddening instruction manual for a do-it-yourself piece of furniture, with page after page of bare-bones guidance — and plenty of room for confusion.

If taxpayers and lawmakers were expecting that a new 37-page reportwould provide a definitive road map of how New York State might sidestep the effects of President Trump’s new federal tax plan and its sharp reduction in the deductibility of state and local taxes, they instead got a view of just how complicated this is.

The report, released this week, laid out at least a half-dozen ways New York could rewrite its tax code, with no indication of which option legislators might pursue. There was a potpourri of progressive rates, wage credits and tax-withholding schemes, with officials cautioning that all the options would require further study. No bills have been drafted.

The possibilities included completely replacing the state income tax with an employer-side payroll tax; introducing a new progressive payroll tax in addition to the existing income tax, with tax credits to make up the difference; or designing a payroll tax only for wage earners above a certain income threshold — the taxpayers most likely to be hurt by the federal tax plan in the first place. Some versions would be mandatory. Others would be opt-in.

More than anything, the report illustrated how difficult it may be to turn academic theory into real policy, serving as a cautionary guide to other states contemplating similar options. And it underscored the political challenges that lie ahead for Gov. Andrew M. Cuomo, as he seeks to sell a new payroll tax that could slightly reduce workers’ wages, even though the net payout, after taxes, would remain the same.

“I am not familiar with any rewrite this substantial,” said David Friedfel, director of state studies at the New York-based Citizens Budget Commission. “On the personal income tax side, it’s the biggest one in memory. I think a lack of precedent is the best way to think about it.”

Even seasoned tax experts said they found the myriad possibilities daunting.

“One thing I was struck by in reading it is just how many complications come with the payroll tax option,” Brian Galle, a taxation law professor at Georgetown University, said.

Mr. Galle said the option he found the most feasible was a hybrid model that would preserve the existing state income tax system, but which would also require employers to pay a new payroll tax.

http://taxprof.typepad.com/taxprof_blog/2018/01/ny-times-saying-you-want-to-reform-the-tax-code-easy-doing-it-less-so.html

Tax, Tax Policy in the Trump Administration | Permalink

Comments

it underscored the political challenges that lie ahead for Gov. Andrew M. Cuomo, as he seeks to sell a new payroll tax that could slightly reduce workers’ wages, even though the net payout, after taxes, would remain the same.

The political sales job requires convincing voters that employees bear the burden of taxes on employers, which is the opposite of what progressives have been telling voters for decades.

Posted by: AMTbuff | Jan 21, 2018 12:43:05 PM