President Donald J. Trump’s economic team unveiled an outline for a tax reform bill on April 26 that could dramatically reduce corporate and individual taxes — but business leaders in Westchester County say more details are needed before judging its impact.
Gary D. Cohn, director of Trump’s National Economic Council, called the proposal one of the biggest tax cuts in American history and said the administration had a “once-in-a-generation opportunity to do something really big” when announcing the plan last month.
“Anytime you can start a conversation about lowering the tax rate for small business, that’s a good place to start,” said John Ravitz, executive vice president of The Business Council of Westchester. He added, however, that there are a lot of questions about the plan and the “devil is in the details.”
The document released from the Trump team is just a single page with bullet points. It’s more of an outline of priorities than a detailed proposal, which his administration has promised is on the way.
As outlined, the proposal would slash the corporate tax for large and small businesses to 15 percent from the top rate of 35 percent. It would also allow owners of pass-through entities, such as sole proprietorships, partnerships and S corporations, to be taxed at the same 15 percent corporate rate.
On the individual level, Trump’s plan would shrink the number of tax brackets from seven to three, starting at a 10 percent tax rate on income, then 25 percent and topping out at 35 percent.
Ronald Hegt, a partner at Citrin Cooperman, an accounting firm with offices in White Plains and Norwalk, said the plan leaves a lot of questions unanswered. He said he has advised dozen of clients who have called in to sit tight for more details. And that uncertainty isn’t great for business.
“What we are hearing is that not only are (businesses) looking for lower rates to allow extra money to be put back in the business, but they’re looking for simplicity and consistency,” Hegt said. “Because you can’t run a business without knowing what next year’s tax law will be.”
Philip Cohen, a professor at Pace University’s Lubin School of Business, said wanting to cut corporate taxes is a legitimate goal, but the extent of the proposed cuts opens up far too large a gap in the deficit.
“It can’t be as draconian as it is,” said Cohen, a retired vice president and general tax counsel for Unilever United States Inc. “The 35 percent rate for corporations now is too high, but you can’t cut it to 15 percent. Whether that number should be 25 or 28, you can’t run up these kinds of deficits.”
The Tax Policy Center said the proposal to cut the corporate rate to 15 percent would reduce federal revenue by $6.2 trillion over the first decade of implementation and by an additional $8.9 trillion in the second decade.
A study by the Committee for a Responsible Federal Budget estimated the tax plan could cost $5.5 trillion over the next decade. That would increase national debt to 111 percent of gross domestic product, the highest in the country’s history, according to the report.
One proposal of particular concern in New York is a plan to eliminate the deduction for state and local taxes. A study released last month by WalletHub found New Yorkers faced the largest overall tax burden in the U.S. and seventh largest property tax burden.
“It’s unfair to people in our area who own homes or live and work in high tax jurisdictions like New York,” Cohen said. “If you’re a homeowner, upper or middle class, you’ll be hurt by this proposal.”
Residents in Westchester benefit from deductions on state taxes more than residents of almost every other county in the nation, according to a report by the Tax Foundation. The $14,784 average local and state tax deductions Westchester residents took in 2014 ranked fourth in the country, behind only Manhattan and California’s Marin and San Mateo counties. Fairfield County, with $14,262 in average deductions, was fifth.
New Yorkers as a whole claimed $68 billion in itemized deductions for state and local taxes in 2014, second only to the total deductions claimed by residents of California, according to a report by the Empire Center for Public Policy.
The possible elimination of deductions for state and local taxes could prove particularly harmful to the real estate market. The National Association of Realtors released a statement that said the plan could “effectively nullify the current tax benefits of owning a home for the vast majority of tax filers.”
The proposal keeps in place the mortgage interest deduction that helps homeowners save on their taxes, but it also doubles the standard deduction. This could mean fewer people itemize their tax returns and take advantage of the mortgage interest deduction, according to Philip Weiden, government affairs director at the Hudson Gateway Association of Realtors.
“Especially for the middle class, it would negate any positive impacts from home ownership,” Weiden said. He said the plan “would have the most negative consequences for states like New York, New Jersey, Connecticut and California, states with higher cost of living and higher property taxes.”
On the business side, Gary Jacobi, a finance professor at the Manhattanville College School of Business, said there is a lot to like, particularly if the final plan allows for the immediate deduction of capital expenditures rather than the current practice of accounting for depreciation.
“That would allow a company like Verizon or ConEd to immediately expense all the money they spend on their network, on modernization,” said Jacobi, who has worked for Verizon, as well as on Wall Street for Bear Stearns and Morgan Stanley. “So for those big companies it would be particularly beneficial.”
But smaller businesses could see benefits as well, he said.
“It will enable companies to show improved net income because of the capitalization and lower tax rates,” Jacobi said. “It would all around be a positive for businesses located in Westchester County and metro area.”
Jacobi described Trump’s proposal as the “opening kickoff.” Similar to attempts to repeal the Affordable Care Act, he said Trump will need a delicate balancing act to get the bill through Congress.
“The Democrats have said, ‘We don’t think we like this plan at all,’ and the Republicans are split between conservatives and moderates,” Jacobi said. “The real conservative Republicans don’t like deficits, so he’s essentially got to please three parties.”
The president’s plan is not off to a great start with Democrats representing New York in the Senate. Charles Schumer, leader of the Senate Democrats, has said the plan favors the very wealthy and hits “New York homeowners right between the eyes” with the elimination of state and local deductions.
Sen. Kirsten Gillibrand criticized the plan as well. Following the plan’s announcement, she tweeted: “If a tax plan doesn’t address growing inequality, strengthen the middle class, and reward work, then it’s a failure.”