Tax plan would be ‘mammoth' pain for New Yorkers, expert says

WASHINGTON — A tax expert warned last week that a presidential panel’s tax-reform plan would hammer New York homeowners, prompting even some New York Republicans to quickly denounce it. “For New York, the change to the homeowner’s tax break would be mammoth,” said Andrew Pike, a tax law expert at American University. The good news for New York and other states that would be hit by such changes, Pike said, is that the plan is highly unlikely to pass Congress. “I’d say its chances are slightly above laughable, but not a whole lot. I think it’s unlikely to succeed politically,” Pike said. Any large-scale tax reform will create winners and losers, even within states, the professor said. But certain New Yorkers, particularly those living in New York City who own their homes, likely would face a steep new tax bill. The panel would convert the home mortgage interest deduction into a credit equal to 15 percent of mortgage interest paid. The $1 million limit on mortgages eligible for the tax break would shrink to the average regional price of housing, ranging from $227,000 to $412,000. Such a limit would leave most lower-middle class homeowners unaffected but hurt those living in hot housing markets, like New York City and the surrounding suburbs. “That’s a big, big tax hit for homeowners. and the vast majority of property owners in New York City,” Pike said. Rep. Vito Fossella, a Staten Island Republican, immediately denounced the plan, saying it would mean a 15 to 20 percent jump in the tax bills of New York City residents. Sen. Charles Schumer predicted the change for mortgage interest alone would harm hundreds of thousands of New Yorkers. In addition, the panel recommended eliminating the deduction for state and local taxes, a move popular with conservatives because it would pressure local governments to lower — or at least not raise — taxes, including property taxes. But New York officials, including Republican Gov. George Pataki, oppose the elimination of the state and local tax deduction. About two of every five New York filers claim the deduction, and its elimination would cost an estimated $12 billion statewide. The advisory tax panel designed its recommendations to simplify the tax code in part to eliminate the alternative minimum tax. AMT was first designed to catch wealthy Americans who were avoiding taxes, but it is creeping more and more into the middle class. In theory, the elimination of the AMT would be a boon to well-paid New Yorkers. But many doubt whether the savings would make up for the new burdens imposed by changes to mortgage interest and local deductions. Under the panel’s plan, most deductions, credits and other tax breaks would be eliminated along with much of the paperwork and equations that baffle taxpayers under a drastically simplified income tax. Many, including the nine members of the presidential commission, have said key recommendations will be unpopular. “The effort to reform the tax code is noble in its purpose, but it requires political willpower,” the group said in a letter to Treasury Secretary John Snow. “Many stand waiting to defend their breaks, deductions and loopholes, and to defeat our efforts.” --- On the Net: President’s Advisory Panel on Federal Tax Reform: www.taxreformpanel.gov