Governor Warns SALT Impact on State Revenues as ‘Serious as a Heart Attack’

ALBANY, NY—In response to two straight months of dramatic declines in state tax revenue, New York Gov. Andrew Cuomo says the impacts of the federal tax reform law that eliminated full state and local tax deductibility (SALT) are “as serious as a heart attack.”

At a press conference in Albany on Monday, Gov. Cuomo and State Comptroller Thomas DiNapoli revealed that estimated sales tax revenues in the past two months were down a total of $2.3 billion from estimates. Both Cuomo and DiNapoli blamed federal tax reform and specifically the $10,000 cap the legislation imposed on state and local tax deductions.

Gov. Cuomo said the dramatic drop in state revenues began in December 2018 and continued in January 2019 and will now cause him to revisit his proposed state budget.

The governor noted that personal income tax collections are down to about 30% of the target. “$2.3 billion as a drop at this point in revenues is as serious as a heart attack,” Cuomo said.

The reduction in personal income tax receipts was for both the withholding component, which largely comes from current wages, including bonus income, and the estimated payment component, which mostly reflects non-wage income.

“The federal administration’s SALT policy is an economic civil war that helps red states at the expense of blue states, and we are now seeing the potentially devastating effect of it in the form of significantly lower tax receipts,” the governor noted. “These changes hurt our economy and make New York less competitive, and we will not stop ringing the alarm bell about this punitive policy until Congress reverses it.”

DiNapoli described the precipitous decline in state revenues as “the most serious fiscal shock our state has faced in years.” He later added, “The disruptive impact of SALT cannot be ignored. We are watching this revenue decline closely to determine how profound the impact will be on the budget picture. We must be wary as we move forward to finalize a state budget, and we need to shore up our rainy-day funds in case a storm hits.”

The governor said that the state will continue to closely monitor state tax revenues to determine how profound the impact will be on the budget picture.

“We must be wary as we move forward to finalize a state budget, and we need to shore up our rainy-day funds in case a storm hits,” DiNapoli said.

State officials noted that 52 of New York’s 62 counties have average SALT levies above $10,000 and in fact the average New York taxpayer has SALT deductions that are more than twice the $10,000 cap.

Other data that officials point to in charging federal tax reform as punitive are that New York has the largest percentage of taxpayers getting a tax hike of any state and that more than 95 % of the tax increase from SALT falls on the top 20% of taxpayers who pay 87% of New York income taxes.

While the governor pointed to the state revenue shortfall as a clear indicator of the SALT impacts, yet to come into focus is the impact SALT will have on the real estate markets.

Many real estate observers are expecting dramatic increases in inventory in high cost areas of the state like Westchester and Nassau counties for example over the SALT caps. Recent statistics point to slightly higher inventory, but not a stampede of homeowners putting their properties on the market as some have feared. Data collected after tax season could provide a better picture of just how drastic the SALT cap will have on the residential market in the New York metro region going forward.