January 24, 2018 / 9:57 PM / in 9 months

U.S. states eye corporate tax as Republican tax overhaul bites

WASHINGTON (Reuters) - State governments, especially those hit hard by President Donald Trump’s U.S. tax overhaul, are considering higher taxes on corporations to protect residents and state budgets from the new law’s impact, officials said on Wednesday.

New York is looking at a possible payroll tax hike to offset the partial loss of a popular federal deduction for state and local taxes expected to cost New York taxpayers $14 billion a year, said Sandra Beattie, deputy budget director at the New York State Division of the Budget.

“We are analyzing the impact of possibly running a dual tax system, having an opt-in provision, having a payroll tax or payroll provision so that the employer and not the employee is paying the difference,” Beattie told a Washington tax forum hosted by the nonpartisan Tax Policy Center think tank.

Employers can deduct payroll taxes from their federal tax bills. Beattie said New York is considering a state tax credit for employees that would be equivalent to the payroll increase.

States are also looking at whether they can glean tax income from the new federal law’s international reforms, including a deemed repatriation of an estimated $2.6 trillion in U.S. corporate foreign profits held overseas, which is expected to generate $339 billion for federal coffers over the next decade.

Officials in some states are also trying to determine if they can tax some of the global income that corporations derive from intangible properties, including patents.

“Politically, that may be the easier money to take, compared to taking money from people who are losing their itemized deductions or their personal exemptions,” Laura Wheeler, a senior fiscal researcher at Georgia State University, told the same tax forum.

The Republican tax overhaul limited deductions for state and local tax, or SALT, payments to $10,000 - less than half the sum that many had grown accustomed to deducting from their federal tax bills.

The diminished SALT deduction could make it harder for states to raise taxes in future years as they seek to balance budgets.

The new law may also hurt larger families by eliminating a personal deduction worth more than $4,000 for each member of households.

But corporations have seen their federal income tax rate slashed from 35 percent to 21 percent and will no longer have to pay federal income tax on active foreign profits.

“Corporations are getting a pretty big nominal tax cut,” said Kim Rueben, an expert on state and local finances at the nonpartisan Urban Institute.

“There might be room there to think about whether, on the state side, there’s room to change the responsibility on the individual versus the corporate liability for taxes,” she said.

Reporting by David Morgan; editing by Kevin Drawbaugh, G Crosse

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