Tax Reform Proposal Would Adversely Affect Real Estate

After reviewing the sweeping tax overhaul outlined by the White House and Republican leaders in the House and Senate last week, it is clear that certain aspects of the proposal will adversely affect the commercial and residential real estate markets across America.  Major cities as well as surrounding areas would be impacted.  REBNY stands with the leading organizations that represent state and local governments at the federal level – including the National Association of Counties, National Governors Association, National League of Cities, The U.S. Conference of Mayors, among others – in opposition to one key element of the plan.

Along with major education, public safety, and realtor organizations, they have expressed deep concern about the adverse economic impacts that the plan’s elimination of state and local tax deductibility (SALT) would have on their constituents and municipal services.  SALT is vital for middle class homeowners and taxpayers who reside in both Democratic and Republican congressional districts throughout the 50 states.  Middle class taxpayers receive the majority of the benefits from SALT.  Of the 44 million taxpayers who claimed the deduction, nearly 86% had an adjusted gross income of under $200,000 and more than 50% of the total dollar value of SALT goes to them.  The loss of SALT would increase taxes for middle class filers by an average of $815 a year, not quite what has been claimed for a tax plan supposedly designed to benefit the middle class. 

The elimination of SALT will also negatively impact the ability of state and local governments to finance basic services, especially education, public safety, and infrastructure across the country.

The National Association of Realtors argues that this proposal will increase the cost of homeownership, thereby reducing home values across the country and creating a chilling effect on local residential real estate markets.

The SALT deduction has been in place since the commencement of the income tax in 1913 and has its roots in an 1862 emergency tax to fund the Union’s Civil War efforts. For over 150 years, every tax form ever issued by the US federal government has included the deduction of state and local taxes – showing its critical role in our federal system. There is simply no compelling reason for breaking with a century and a half of established practice on this issue and violating a fundamental principle of a fiscal federalism.

It has been argued by elected officials who favor SALT’s elimination that this middle class tax benefit is really a subsidy of high-tax states, like New York, New Jersey, Connecticut, and California. This oft-repeated argument is simply false. Every major study has shown that it is the high-tax states, like New York, that contribute far more in tax revenue to the federal government and other states than they receive.

We have a negative balance of payments to Washington – certainly not a subsidy.

All in all, the elimination of the state and local tax deduction would be a damaging blow to the health of middle class taxpayers, homeowners, as well as state and local governments across the country.

Any serious analysis of the elimination of SALT, as this tax plan proposes, would show it to be harmful and costly for not only New York, but for all American local governments – cities, counties, and school boards.