Cuomo Sees Blow From New York Tax-Hike Plan Offset by SALT Repeal

New York Governor Andrew Cuomo said he expects the tax increases in his state budget deal to be offset by a repeal of the federal cap on state and local tax deductions.

Cuomo said he has spoken to New York’s congressional representatives and President Joseph Biden, and “fully” expects a SALT repeal. When that happens, net taxes will be 37% lower, the third-term governor said Wednesday during a press briefing.

“When you talk about this tax package you cannot talk about it without anticipating a SALT repeal,” he said. “When SALT is repealed, the taxes will be going down.”

It remains unclear if the SALT cap will be repealed. The $10,000 cap is a prime focus for Democrats in Congress, who have said they won’t support Biden’s tax increases to fund his infrastructure proposal unless the plan includes a repeal of the cap. Representatives from high-cost states, including New York and New Jersey, have said the restrictions on the tax break -- enacted by former Republican President Donald Trump -- have caused their residents to pay more in taxes.

Cuomo, a Democrat, announced an overdue $212 billion budget agreement on Tuesday, caving to state lawmakers’ long-held demands to raise taxes on the wealthy and boost spending. The deal will increase taxes for millionaires, raising income-tax rates for single filers reporting over $1.1 million, and joint filers reporting more than $2.2 million, to 9.65% from 8.82%.

The deal also will create two new tax brackets. Those making $5 million or more would be taxed at 10.3%, and those earning over $25 million would be taxed at 10.9%. The new rates would expire in 2027. The budget agreement also raises the corporate franchise tax rate to 7.25% from 6.5% for three years. Increases in the capital gains and estate tax didn’t make it into the budget.

“The feeling was that those taxes would do damage to the state and actually cost the state more money than we would raise,” Cuomo said Wednesday.

Late Deal

The budget is normally due ahead of the start of the state’s fiscal year on April 1. Cuomo has long prized on-time budgets as a sign of a functioning government, a change from previous governors that let negotiations languish into the summer. He even tied lawmakers salaries to the budget’s passing, calling the inability to pass an on-time spending plan in 2016 “a failure of performance.”

The embattled governor is facing multiple investigations into sexual harassment claims, a federal probe over his handling of coronavirus deaths in nursing homes, and calls to resign by dozens of members of his own party who say his scandals have become a distraction in Albany. He’s also contending with a super-majority in both houses, where the progressive arm of his party has been emboldened by his foibles.

This time around, the budget negotiations revealed a weakened hand for a three-term governor who typically wields an inordinate amount of power and uses the spending document as a mechanism to push through signature policies.

Cuomo has said that negotiations conducted via video conference, rather than in person, slowed down the process and that writing budget proposals before Biden’s federal stimulus package was passed created added uncertainty.

As the state assembly began an impeachment inquiry last month into Cuomo and his administration, the governor began holding a series of televised appearances at Covid vaccination sites to highlight what he called a race to crush Covid with the state’s vaccine push. These staged appearances have been closed to the media, citing Covid concerns, but filled with political supporters, Black clergy, local politicians, and health officials who use the occasions to praise the governor and his leadership. During other calls with reporters, the governor has refused to answer questions about the sexual-harassment allegations until an investigation under the state Attorney General Letitia James is completed.

But while Cuomo has tried to project an image that he’s governing as usual, the budget revealed cracks in his armor. The biggest sign of a diminished hand comes in the budget agreement’s tax hikes on the rich, which Cuomo had long derided as a deterrent to business leaders who bring revenue to the state.

“There’s no doubt in my mind that the governor’s problems had an influence on the budget process,” said state Senator Jessica Ramos, a Queens Democrat. “He was distracted at times when the news cycle wasn’t operating in his favor.”

Still, Cuomo managed to prevail in several negotiations with legislative leaders. Most notably, Cuomo knocked out an attempt by progressive lawmakers to end the preferential tax rate on capital gains, and he won a $1.3 billion appropriation of capital funds for a Penn Station expansion project that city officials have opposed, including New York City Mayor Bill de Blasio, as a land grab by developers without local oversight.

“The governor has an extraordinary advantage in budget negotiations,” said state Senator Brad Hoylman of Manhattan. “For whatever reason, this project was so important to him that he apparently insisted upon it for the process to move forward.”

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