House Budget Bill Deals Big Blows to New York

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The Republican tax and spending bill that passed the US House of Representatives Thursday would punch a hole as big as $20 billion in the $254-billion state budget enacted just weeks ago.

It could force more than 1 million New Yorkers off Medicaid statewide.

And it would confront both the state and city with tough choices about finding the money to replace lost federal aid or see safety-net programs dramatically downsized.

But the federal package would also provide tax breaks to certain targeted New Yorkers.

Restaurant servers and others who get most of their money from tips, and seniors who take the standard deduction would benefit. Upper-middle-class families are also winners—mostly in the New York City suburbs—who pay large local property and state income taxes and carry a sizable mortgage would all benefit from a fourfold increase in the deduction for state and local taxes, also known as SALT.

Some working-poor New Yorkers will see an increase in their child tax credits, as long as they have enough income to make the credit useful.

The Republican plan still faces hurdles in the Senate, where some Republicans have already said they oppose parts of the bill, especially those cutting Medicaid. President Donald Trump, whose intervention this week was crucial in getting all the House Republicans on board, can afford to lose only three Republican senators if the bill is to become law.

New York Democrats wasted no time in attacking the plan, which also targets food, medical, and housing aid for the poor.

“With the passage of this budget, the Republican delegation tore up SNAP benefits, slashed funding for affordable housing, killed clean-energy projects, and enacted the largest Medicaid cut in history—and they did it all while still managing to roll over on the SALT cap,” said Governor Kathy Hochul. “Pathetic.”

Mayor Eric Adams declined to criticize the Republicans or Trump in a statement to THE CITY. Instead, he pointed to his efforts to improve the city’s safety net and added, “Working-class New Yorkers rely on federally funded programs to help pay rent, buy food, access healthcare, and more. We continue to advocate for funding for federal programs that will allow us to keep doing our important work.”

The seven New York House Republicans, most of them representing swing districts, have made the calculation that the tax cuts will be more popular with their constituents than any damage to the state budget.

“We wanted to make sure this is targeted to the middle class, that we are providing real tax relief to those families who have been crushed by New York’s highest-in-the-nation tax burden under Democratic Party rule,” said Rep. Mike Lawler, who represents suburbs north of New York City.

The biggest impact by far comes from attempts to sharply reduce spending on the Medicaid program.

Changes to Medicaid could cost the state $13.5 billion, the Hochul administration estimated earlier this week, with most of the money coming from prohibitions on using healthcare funds for immigrants—both legal and undocumented.

Hochul estimates the state will lose $1 billion it uses to cover care for undocumented immigrants and another $1.6 billion for a tax on insurers it uses to boost federal aid, and $570 million to enforce strict new rules.

Costly Medicaid Restrictions

The biggest reduction will come from the state’s Essential Plan, which provides very-low-cost insurance for people making slightly more than would allow them to get the most help for Affordable Care Act plans—fully funded by the federal government. The bill would force the state to move legal immigrants to Medicaid, cut the reimbursement rate to providers, and result in the loss of almost $8 billion in federal aid.

The bill requires able-bodied adults to either work at least 20 hours a week, volunteer for the same number of hours, or be attending school—something New York does not require. It also imposes paperwork and recertification requirements. The two steps could result in about 1 million people losing their Medicaid coverage, experts estimate, some because they don’t qualify but most because they find meeting the requirements too onerous.

Currently, about 7 million people statewide are in the Medicaid program, which covers 60 percent of New York City residents.

The reduction in food assistance could force the state to find $1 billion if it is to make up for the loss of federal money. And while not part of this bill, the Trump budget proposal for the fiscal year beginning in October would slash billions from housing aid and put strict time limits on the use of vouchers, which would also force tough decisions by the city and state, whether to find the money to replace the federal aid or see evictions soar.

The impact of the bill wouldn’t just be felt in the budget. The Medicaid cuts could reduce healthcare jobs in the state by 78,000, the progressive Fiscal Policy Institute estimated this week, about 4 percent of the total in that sector.

Tax Relief—for Some

While Democrats talk about budget cuts, Republicans will be emphasizing tax cuts—especially one cut increasing the amount of state and local taxes that people can deduct on their tax returns, to $40,000 from $10,000. But it will actually help a relatively small number of New Yorkers.

State and local tax deductions are available only if you itemize instead of taking the standard deduction. Since that deduction this year for a couple is $30,000, taxpayers need more than that in state and local taxes, mortgage interest, medical bills, and charitable contributions to make itemizing worthwhile. It is likely that only couples who live in counties near the city with sky-high property taxes—such as Westchester, where the average tax bill is a little more than $15,000 per year—pay substantial state income taxes, and have mortgages will benefit.

The higher deduction will be of no use to the best-off New Yorkers, since it begins to phase out at $500,000 in income and is completely eliminated at $600,000. Groups like the Partnership for New York City say such people are increasingly moving to lower-tax states like Florida because of the tax burden and that threatens the state’s finances because the top 200,000 payers account for half of all the income tax revenue the state collects.

Not only does the bill not provide any benefit to the wealthiest New Yorkers, it eliminates a workaround that has saved those people collectively billions of dollars in federal income taxes especially for business owners and others in partnerships. Profits from these businesses are passed through to the owners, which converts business owners’ personal income taxes into deductible business taxes. States create new taxes, usually elective, that are paid by businesses and subtracted from net income attributed to owners. The owners get credit on their state personal income taxes for having paid that tax already. The effect: a full deduction of state income taxes on business owners’ federal tax returns.

Meanwhile, workers whose income is primarily from tips won’t have to pay income taxes on up to $25,000 in income as long as they make less than $160,000, partially fulfilling a Trump campaign promise not to tax tips. While the House decided it could not go along with his plan to end taxes on Social Security benefits, it did increase the standard deduction for seniors by $4,000.

The bill also increases the child tax credit to $2,500 from $2,000 for each dependent. But while the Democratic child tax credit passed in COVID relief bills worked as a simple payment to those who qualify, the Republican version is helpful only to those who have enough income to pay taxes offset by the credit.

The bill keeps in place tax cuts that were enacted in 2017 in the first Trump administration and were scheduled to expire at the end of the year. But they, too, are temporary, expiring at the end of the president’s term in 2028.

Passage of the House bill comes just weeks after Hochul and the legislature agreed on a $254-billion budget that ignored both the efforts in Washington to slash federal aid and growing concern that Trump’s economic policies will send the economy into a recession that will reduce expected revenues.

“The state chose to adopt a budget that increases state spending 12 percent, yet put no money aside to mitigate the initial blows of looming federal cuts,” said Andrew Rein, president of the fiscal watchdog Citizens Budget Commission.

The city is on course to also adopt a budget next month that increases spending. Comptroller and mayoral candidate Brad Lander on Thursday reiterated his proposal that the city increase its reserves by some $2 billion. The Citizens Budget Office and the Independent Budget Office have all suggested putting more money aside, but the mayor and City Council so far have resisted such a step.

The city has $8 billion in reserves, a figure that has not been increased for several years.