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Health & Fitness

What's A Tax Loophole?

Governor Andrew Cuomo issued a report last week raising the alarm about a possibly disturbing development in Washington in the discussions over closing loopholes in the federal tax code. For most of us, when we think of tax loopholes that benefit the rich, what comes to mind are write-offs for things such as private airplanes. Many of us think eliminating those as tax deductions makes a lot of sense in trying to close the federal budget deficit. But as the Governor points out in his report, some people in Washington are classifying as a loophole deductions that are claimed by more than 35 percent of New York State taxpayers: state and local taxes, including local property taxes. In their efforts to raise revenues without changing tax rates, they are suggesting eliminating those “loopholes.” I don’t know about you, but I don’t consider a deduction claimed by more than one-third of the taxpayers in this state – and by as much as 40 percent of taxpayers in some other states – as a “loophole.” If the deduction were eliminated, the effect on individuals across the country would be devastating. On Long Island alone, according to the Governor’s analysis, federal income taxes would rise by an average of $4,300 for more than 900,000 taxpayers. Taking that much money out of the pockets of Long Islanders would seriously affect our local economy, and our economic recovery, by reducing money available for spending. Just as disturbing is another proposal to eliminate the federal tax exemption for interest earned on municipal bonds. As the report notes, being able to market bonds as tax-free allows state and local governments to save on the average as much as two percentage points on their borrowing. These bonds are used to finance vital infrastructure projects, including roads and parks, and this exemption has been on the books for almost a century (the deductibility of state and local taxes has actually been on the books since 1862). Eliminating the tax exemption for municipal bond interest would drive up the cost of borrowing and potentially force local governments to delay important projects because of the borrowing cost. Our local Congressional delegation opposes these proposals, but I’m sure they could use your support. Let them know how you think, so they can let their colleagues who are entertaining these outrageous suggestions know that they do not have the interests of the public at heart. I commend Governor Cuomo for the research that has quantified how these proposals would hurt us all, and I hope that his report will convince those who are looking at ways to close tax loopholes to go back to focusing on private jets.

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