STUMP » Articles » Taxing Tuesday: Huzzah! Long Live the SALT cap! » 8 October 2019, 07:27

Where Stu & MP spout off about everything.

Taxing Tuesday: Huzzah! Long Live the SALT cap!  

by

8 October 2019, 07:27

(SALT cap zero NOWWWWW!)

WSJ: Judge Dismisses States’ Challenge to Trump Tax Overhaul

A federal judge on Monday dismissed a lawsuit filed by four East Coast states that said part of the 2017 federal tax overhaul is unconstitutional because it was politically motivated.

The focus of the lawsuit in U.S. District Court in New York was the tax law’s $10,000 limit on the federal income-tax deduction for state and local taxes, or SALT.

Officials in high-tax states such as New York and New Jersey said the cap was a federal attempt to force local taxation policies, enacted by Republicans in Congress, to target Democrat-leaning states.

Lawyers for the federal government said Congress has broad taxation powers and was within its rights to make adjustments to the federal code. The plaintiff states — New York, New Jersey, Connecticut and Maryland — sued in July of 2018. The federal government moved for dismissal in November of that year, arguing the states lacked jurisdiction and hadn’t stated a valid claim.

U.S. District Judge J. Paul Oetken said the states failed to show that the disproportionate economic effects of the SALT cap were different than other matters that would shape state taxation policies.

“The cap, like any federal tax provision, will affect some taxpayers more than others and, by extension, will affect some states more than others,” Mr. Oetken wrote. “But the cap, again like every other feature of the federal Tax Code, is a part of the landscape of federal law within which states make their decisions as to how they will exercise their own sovereign tax powers.”
….
Earlier this year, Mr. Cuomo blamed an unexpected revenue shortfall on wealthy individuals moving or shifting their official residences to lower-tax states, prompted by the SALT cap, and said it was part of an “economic civil war” on New York.

In a statement, Mr. Murphy said the SALT limit “weaponizes our nation’s tax code at the expense of our already overburdened taxpayers.”

The vast majority of New York and New Jersey residents received federal tax cuts because of the changes. Many who have state and local taxes above $10,000 are benefiting from lower federal-tax rates, bigger child tax credits, the larger standard deduction and the narrowing of the alternative minimum tax.

New York, New Jersey and Connecticut enacted workarounds to the SALT limits that would allow taxpayers to make payments to government-controlled charitable organizations in exchange for credits against state or local taxes. They were designed to let taxpayers deduct the payments as charitable contributions on their federal income tax returns.

The IRS finalized a rule in June that essentially negated the workarounds, and lawyers for New York, New Jersey and Connecticut sued in July to overturn it. That case is pending in federal court in the Southern District of New York.

Basically, the SALT cap is there, and it’s effective. Suck it, my fellow NYers and taxed-up-the-wazoo-in-CTers.

But, as I’ve mentioned multiple times before, it is an extremely small group of people who actually ended up paying more under the TCJA, and they tend to be extremely unsympathetic people. Very high incomes, and tax-optimizing-all-over-the-place.

What happened to most of us here in High-Tax-Topia is that we got very slight tax cuts. Even I managed to get a tax cut. It was small, but I didn’t have to pay more due to the TCJA.

Ilya Somin on the ruling:

I do understand that the four states fear that, absent a robust SALT deduction, high-income taxpayers might migrate to states with lower tax rates. But there are better, less inefficient and regressive, ways for blue states to increase their tax bases.

When it was first filed, this lawsuit achieved the rare distinction—in our polarized times—of attracting scorn from legal commentators across the political spectrum. At the left-wing Think Progress site, Ian Millhiser called it “one of the stupidest lawsuits of the Trump era.” Conservative-leaning tax law scholar Andy Grewal wrote that “[i]f this lawsuit succeeds, I will post a video of myself eating every single page of the Internal Revenue Code, one-by-one.” I was highly critical of the suit myself, though I am no great fan of either the liberal left or the conservative right, these days.

I support many of the lawsuits filed by blue jurisdictions against the federal government, in recent years. But this one is an exception.

Judge Oetken is a liberal Obama appointee. But I doubt the result would have been much different with a conservative judge. Indeed, the plaintiff states probably chose to file the Southern District of New York because they thought the judges there would be more favorable to their case than those in other jurisdictions they could have chosen.

The states filing over the SALT cap forget stuff like the Alternative Minimum Tax, which has hit me in the past and generally hits people like me: high income people living in high SALT locations.

Ultimately, I hope the SALT cap goes to zero (decouple federal and state taxes! NOW!)

Effort to roll back SALT cap runs out of options

States fighting a legal battle against a $10,000 cap on the federal deduction for state and local taxes ran out of viable options Monday when a federal judge dismissed a lawsuit filed by four states claiming the cap impinged on their constitutional sovereignty.
…..
State tax credits enacted by New York and New Jersey as workarounds for paying property taxes and state income taxes were severely limited by the IRS and Treasury regulations finalized in June.

A taxpayer who receives a 90% state tax credit of $900 for a $1,000 donation can claim a federal charitable contribution deduction of only $100.

State tax credits of 15% or less are exempted. The limitation also does not apply to deductions that reduce taxable income.

But the rule does clamp down on older state tax credits of up to 100% for private school donations, often to scholarship funds, which can be used by donors to also claim federal charity deductions.

Six states of the 18 that had these tax credits prior to the 2017 federal tax law had prohibited donors from simultaneously claiming a state tax credit and a federal charity deduction.

Yup.

The main thing that annoys me about this whole thing is my tax money being wasted in these lawsuits.

SOME GOOD NEWS: PEOPLE GETTING THEIR MONEY BACK

Refund Madness: Taxpayers From Coast To Coast Set To Receive Surplus Revenue

The federal government is getting back to trillion dollar annual deficits, yet state governments are realizing budget surpluses, with the majority of states experiencing record revenue collection in 2019. Taxpayers in a number of states across the country, both Republican and Democrat-run, are set to see some of that surplus revenue coming back their way in the form of both permanent tax relief and one time payments.

Oregon Kicking Back $1.5 Billion to Taxpayers

This summer state economists in Oregon announced that state revenue collections for the biennium had exceeded expectations by $2.6 billion and that Oregon’s $3.7 billion rainy day fund is now the largest reserve in state history.

Oregon has an automatic taxpayer refund law referred to as the “kicker,” which is triggered when personal income tax receipts exceed initial projections by 2% or more.
…..
Budget Surplus Benefitting Wisconsin Taxpayers

Wisconsin officials, like their counterparts in Oregon, also discovered this summer that the state is collecting much more revenue than previously estimated. The Wisconsin Department of Revenue released data in August showing general fund collections that are nearly $703 million higher than projected.

Thanks to a state law requiring a portion surplus revenue be set aside, and previously enacted legislation that directs surplus revenue toward income tax relief, “an estimated $321.7 million will be sent to the budget stabilization fund for FY 2019, which will nearly double the fund’s current balance of $327.4 million,” writes Katherine Loughead, a policy analyst at the Tax Foundation. “An additional $59.2 million in FY 2019 Wayfair revenue will be dedicated to downward adjustments to the two lowest marginal individual income tax rates for tax year 2019, as prescribed by 2019 Wisconsin Act 10.”
…..
South Carolinians To Receive Rebate Checks In 2019, Facing Prospect Of Permanent Tax Relief In 2020

A South Carolina resident won a $1.5 billion Mega Millions jackpot earlier this year, which resulted in a $61 million unexpected tax payment to the state. In response, Palmetto State lawmakers passed legislation to send that surprise windfall back to South Carolina taxpayers in the form of $50 rebate checks.

Ha, everybody won the lottery! Woo!

TAX STORIES

I will likely be writing about Japan’s consumption tax increase next week — this went into effect on October 1, and I’m waiting for a little more news to see about impact.

TAX TWEETS

Look at that graph — seems to me we should do just a flat rate, right? [I assume this includes payroll tax, which explains why the lower income levels have about the same percentage paid]

Hmm, interesting.

I’m not copying over the next full thread over, but I’ve gotten into this sort of yelling match before —

DETAILS MATTER.


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