|Release: Transcript of Cuomo Budget Director Bob Mujica on Arbetter radio show January 18. Topic is state tax changes in aftermath of federal tax law.|
|For Immediate Release: 1/18/2018 |
GOVERNOR ANDREW M. CUOMO
AUDIO & TRANSCRIPT: BUDGET DIRECTOR ROBERT MUJICA ON STATE TAX REFORM
At the direction of Governor Cuomo, the New York State Department of Taxation and Finance released a preliminary report yesterday to outline options for state tax reform in response to federal tax legislation. View the report here. Earlier today, Budget Director Robert Mujica appeared on Capitol Pressroom with Susan Arbetter to discuss the report.
AUDIO of the interview is available here.
A rush transcript is available below.
Susan Arbetter: Joining us today to present these options is the architect of the state's spending plan, Budget Director Robert Mujica. Robert, welcome to the Capitol Pressroom.
Robert Mujica: Good morning, Susan. Thank you.
Susan Arbetter: So let's start with the payroll tax and the ideas around the payroll tax to soften the blow of the reduction of the SALT elimination or SALT reduction, rather. Explain why a payroll tax might be appealing.
Robert Mujica: There currently are payroll taxes on wages. The Social Security tax is a payroll tax. Unemployment insurance is a payroll tax. All it means is it goes on the payroll versus going on the individual. And the reason this is more appealing now because of what Congress did is because while they eliminated deductibility for individuals, they left it for corporations and businesses. So they said individuals, you can't deduct your local taxes. You can't deduct your property taxes. But businesses you can continue to deduct your local taxes and your property taxes. So our whole system was designed around state and local tax deductibility. Our tax code was designed around state and local tax deductibility because state and local tax deductibility has been around since 1913. It was always the states first, then the federal government taxes after the state tax. That's the foundation of the tax code, and our tax code was built around that. So when Congress now just wipes that out.
Susan Arbetter: We have to respond.
Robert Mujica: We have to respond. Exactly.
Susan Arbetter: Would the state eliminate its income tax under this proposal? Maybe, maybe not?
Robert Mujica: So that's one of the options. One of the options is to eliminate the income tax entirely. It's challenging, because the income tax has many different facets to it. You have withholdings. You have non-wage income. You have wage income.
Susan Arbetter: It's progressive.
Robert Mujica: Right. It's very progressive. So if you were to change it, you would recreate a progressive system. So that would change. What we're trying to do is recreate what we have but on the wage side. So that you can maintain the deductibility. So the $14 billion loses under the federal plan stays with New Yorkers. And that's just, it's technical, but in the essence, that's what this plan does.
Susan Arbetter: What I'm hearing is that payroll taxes can somehow be made to be progressive, like the income tax?
Robert Mujica: Yeah. You know, people talk about whether it's a payroll tax, an income tax, the reality is for an individual, it's the same thing. You take home your pay, you get paid a gross amount, taxes come off, then you have a take home pay. Whether it's a social security tax, unemployment insurance, whether it's your personal income tax, that all comes off, then you have your take home pay. Under all of these plans, that does not change. You, an individual, will take home the exact same amount. That's the intent here. So it's seamless in that way. It gets complicated on creating that system, but that's the intent here.
Susan Arbetter: The take home pay may be the same, the gross paycheck will likely be less, and isn't that going to be a problem in terms of the downsides to some of these proposals? Some employees are not going to like that.
Robert Mujica: Well, it depends on how you do it and that's why Tax and Finance proposed 37 pages of just options, which will result in hundreds of pages of legislation. But the point is, right now, you have your taxes get taken off, right? So you have your personal income taxes removed. That personal income tax line just gets replaced with a payroll tax line. There really is no difference, right? How you craft it, different ways, some are harder than others, some are more complicated than others, and that's why we have this 37-page report. But I think when people talk about it, it's a new tax, I think people get concerned that we're creating something new. What we're doing is the entire code might have to change, so it looks different because of what the federal government did but the result for New Yorkers will be a benefit or at least maintaining where they were before the federal tax plan.
Susan Arbetter: So another issue with this particular proposal is that from what I understand, it's all voluntary. I mean, this portion of it anyway. The region of the state that will be most affected by changes to SALT is downstate. The high tax areas, right? The city, Westchester, Long Island. If only businesses in that region opt into this voluntary payroll tax scheme, would it work?
Robert Mujica: It would work for those businesses. Everyone around the state is impacted by the loss of SALT. Right? Some are impacted more than others. The reality is that 70 percent of the income tax that the state collects happens to come from Westchester, Nassau, Suffolk and New York City. So as a result they get impacted more. But the entire state is impacted. When you have more businesses that choose to participate, coming from that area, that'll just mean that those businesses will be able to benefit from it. But we wanted to create an option so that if people don't want to participate in the system, then they wouldn't be forced to. Just like we allow people right now, you can choose a standard deduction or you can choose to itemize. That's an individual's choice. So we want to maintain those choices.
Susan Arbetter: What about those businesses that don't pay, don't have a state payroll tax basically, like nonprofits and the state government? What do you do in that case?
Robert Mujica: So you can do something there as well. So, the issue is, what the federal government did is, if you get paid $50,000 a year and you had taxes of $5,000 taken off, you would then pay federal taxes off of the $45,000. What the federal code said is, no. You're going to pay taxes on the $50,000. So what this does is, is for all individuals, even not for profits or a government entity, they could withhold a certain amount of wages - the same as it would have been under the personal tax code. So, you're still being paid the $45,000 and you're only getting taxed on the $45,000 and everyone is made whole on the missing amount. I know it sounds a bit complicated.
Susan Arbetter: Its complicated but, the idea that this is not an additional tax is important. That this is a whole change in the code. And so, it's very complicated, it's dense and nothing has been decided yet.
Robert Mujica: Right and I think that's the critical part. People hear taxes and they hear of changing the tax code, there's some concern in what that means, but they changed it fundamentally for us - so we have to do something.
Susan Arbetter: I want to ask you about another option that I've heard less about and that is the charitable contribution. How would that work?
Robert Mujica: So the charitable contribution, similar to what they did on the personal income side - for a charitable contribution, if an individual makes a donation to a hospital or to a school presently, that is a charitable contribution. But, if you pay the tax to the state and then the state pays that same contribution to a hospital or a school, that is not tax deductible. So here we just want to make it clear that if you pay tax, you pay the state, you owe the state a certain amount of tax - you can dedicate a portion of that tax to a school, to a hospital, and that would be charitable deduction. So you can also pay your taxes that way.
Susan Arbetter: I pay my school and property taxes right now via an escrow account in my mortgage payment. So, would this be separate then? Would we be separating out - would home owners be separating out a mortgage payment from a tax payment?
Robert Mujica: I think you can still do it even if you do it through escrow. You can just tell the bank who is handling your escrow to dedicate a portion of your withholding of your escrow to a school district or to a certain health care fund, and that will then offset your taxes. So in the end you'll pay the same amount, but some of it will be tax deductible like it presently is.
Susan Arbetter: Is it going to be more of a pain for taxpayers?
Robert Mujica: That's the key in the drafting of this. We want to make it simpler. Actually, this could result in a simpler tax code. It could result in less options in terms of different things you have to select. But as you maintain the progressivity and sure people may have to, you know file long forms by the time you're done with this.
Susan Arbetter: Alright, there is a chance that the IRS or tax courts could find these proposals simply don't work, which would create a headache for New York taxpayers number one, and if, even if they do pass legal muster, Robert Mujica, won't Congress simply clarify the law to say that the deduction of state taxes is still limited?
Robert Mujica: Yeah, I can't speculate as to what Congress is going to do, what they did now was unfair for New York, right. New York pays, pays Washington $48 billion more than we get back, we're a donor state, we're the largest donor state in the nation, and they chose to then go to the largest donor state to take more from New Yorkers. SO within the confines in the law as it was drafted, we have legal experts, we have legal scholars, we have some of the best tax lawyers in the country working with us to do our, to create our code in a way that we think is going to withstand any legal test. But if Washington wants to come after New York again and try to recover these funds we'll have to deal with that. But right now, we're going to do whatever we can to protect New Yorkers.
Susan Arbetter: We have about 40 seconds, what is the timeline here? I know that proposals are out now, who is reviewing them and do you expect legislation to be ready in time for passage in the budget?
Robert Mujica: So we released the report yesterday, the next steps right now is sitting with the tax experts that we've been consulting with. Having them review the options, this is based on earlier conversations but now we've put out concrete options. And then work from now through the budget cycle to draft legislation. We have a 30-day amendment period so we can amend the budget that the Governor submitted yesterday to the legislature. So we hope to have legislation drafted within that 30-day period so we can get everything done.
Susan Arbetter: Who is going to be looking at this?
Robert Mujica: Well, tax and finance will draft the legislation, but we want to bring in our partners in government, we want to bring in the legislature, we want to bring in both houses and then also bring in the business groups that we'll be impacting as well.
Susan Arbetter: Okay.
Robert Mujica: As well as just other outside legal experts who were going to rely on for some of their advice.
Susan Arbetter: We've been speaking with Robert Mujica. He's the state's budget director, I want to thank you so much.
Robert Mujica: Thank you, thank you Susan, thanks for having me, bye.