New York state will stop basing its capital gains tax on federal government regulations if President Donald Trump follows through on his proposed unilateral change in how the levy is determined, Governor Andrew Cuomo said.
Trump has said he wants to bypass Congress and order that the net profit on stock or property sales be calculated with the original purchase price adjusted for inflation. That would result in a smaller capital gain, and less tax liability. It would benefit those with incomes in the top 5 percent, and it would cost New York state about $500 million in revenue, the governor said. The U.S. would lose about $100 billion in tax revenue, he said.
New York is among 12 Democratic-leaning high-tax states already hurt the most by the tax cuts enacted by Trump and the Republican-led Congress late last year, Cuomo said. Those cuts, which reduced federal deductions for local and state real estate and income taxes, have hurt property values and home sales throughout the state, the governor said. This change, which would be done administratively without Congress, is probably illegal, Cuomo said.
“The Trump administration does not have the power to do it; it’s the province of Congress,” he said, vowing to decouple the state from the federal tax code as soon as the state legislature convenes in January. “We’re not giving the state another tax break and we’re not going to hurt the state of New York again.”
The governor said the Trump proposal would be “a great boondoggle for the very rich” while being a “very significant hit on your existing state budget projections,” based on revenue assumptions that would lose half a billion dollars.
“The law is clear that Congress is supposed to make legislation regarding taxation and this is trying to get done by regulation that which they can’t get done by legislation,” Cuomo said. “It’s everything they accused President Obama of, right? That he was using regulatory ability and executive orders to bypass the legislative process. This is clearly in the province of Congress. They should go to the Congress and say ‘we want to redefine what is capital gains.’”
Earlier this year, New York decoupled a number of provisions from the federal tax code, becoming the first state to enact two workarounds to the $10,000 cap on federal deductions for state and local taxes. One of the measures created a state-operated charity to which taxpayers could donate instead of paying state income tax. Taxpayers could then deduct the donations from their federal taxes.