STUMP » Articles » More on High-Tax States Trying to be Clever in Helping Rich People Avoid Federal Taxes » 4 January 2018, 08:36

Yeah, it’s gonna be a theme this year.

CALIFORNIA

Here’s that dumbass donation idea again.

SACRAMENTO — California Democrats are toying with a brash scheme to skirt a new federal cap on state and local tax deductions: Instead of paying taxes to the Golden State, Californians would be allowed to donate the money to the state’s coffers — and deduct the entire sum from their federal taxes.

The hastily drafted proposal — to be unveiled as soon as Wednesday, when lawmakers return from a monthslong recess — strikes back at one of the least popular elements of the GOP’s tax overhaul, one that hit California and other high-tax, high-cost states the hardest. It also promises to establish a new front in California’s famous anti-Trump resistance efforts, which last year took on immigration enforcement and environmental regulatory rollbacks.

“The Republican tax scam disproportionately harms California taxpayers,” said Senate leader Kevin de León, also a candidate for U.S. Senate, who plans to introduce the proposal this week. “Our hard-earned tax dollars should not be subject to double-taxation, especially not to line the pockets of the Trump family, hedge fund managers and private jet owners.”
….
The average state and local tax deduction for Californians who itemize was $22,000, according to the state Department of Finance. The new federal law caps that deduction at $10,000, less than half that amount.

GUYS THE STANDARD DEDUCTION WILL BE $24,000 FOR MARRIED COUPLES.

Most of the high income households are for married couples.

The people who will be really hit are the very high income folks of California.

Some reality:

The Senate’s plan, which is likely to evolve in the coming months, now centers around the charitable-donation alternative. Political observers say such a move by high-tax states could prompt Congress to change the rules for charitable donations, but they predict the end-run will encounter little resistance in Sacramento.

The U.S. Congress may not even have to do that. By what measure is paying what you’re required to pay for state taxes in any way a charitable donation? They keep pointing to donations made to private school vouchers being tax-deductible… you know, they’re donations because:
1. The people making them are not required to give anything to those programs
2. The donations are going to actual education charities

Have any of these people ever dealt with someone trying to be clever about definitions in tax with the IRS? Ever heard of the sovereign citizen tax scam? (it doesn’t work, btw). Just because the states would attempt it doesn’t mean it will actually fly with the IRS.

“If they could make it work so that there’s no financial loss to the state,” she said, “what’s not to like, as long as California gets the revenue that it needs?”

Sounds great! Starve the federal beast!

Seriously, are Democrats thinking this through at all?

NEW YORK

John Podhoretz on the obvious: New York has no leverage here

On the last night of the year, the Trump administration informed New York and New Jersey that there was no longer a deal with the federal government to help fund the desperately needed new rail tunnel between the two states — a $13 billion hit.

Before that came the signing of the tax bill, whose limitations on the mortgage-interest and state- and local-tax deductions (SALT) are going to hammer upper-middle-class residents in these states and send real-estate values into a downward spiral.

via GIPHY

Should states with high taxes have been allowed to keep their taxes high and spend so much on services not provided to other states by gaming the system through the state- and local-tax deduction?

And was there a public interest in allowing people who can afford million-dollar mortgage payments to deduct the entirety of the interest on those mortgages — or does the existence of that deduction simply inflate housing prices at every level and make home ownership unaffordable?

Good questions.

But what we do know is this: Had there been a single Republican senator in any of the high-tax states in America — a senator in New York or New Jersey or Illinois or California or Oregon or Minnesota or Hawaii — the elimination of the SALT deduction would likely not have been included in the final tax-reform bill.

The loss of a single Republican vote in the Senate would have had potentially catastrophic consequences for final passage of the bill. This would have been known to the House and Senate, and the entire structure of the package would have been reconceived from the get-go to avoid the possibility of losing that vote.

Bingo. There are a handful of Republican representatives in New York, and similarly in California.

These states have an all-Democrat senate roster.

Same for Connecticut.

ONE-PARTY CONTROL MEANS NO LEVERAGE

Here is a map of the senate seats right now, with purple and other weird colors indicating split party holdings:

Let’s see, of the red & purple states on the map, the ones that are high tax are…. Pennsylvania. That’s it.

This is what the House of Reps looks like:

Lookit that. All the states squawking about their rich people getting soaked by both state and federal are a lovely shade of blue.

ELECTORAL REALITY

Here are the Senate seats up for re-election in 2018.

Of the 34 seats up for grabs, only 11 are considered competitive. Of those 11, only 1 is a seat currently held by a Republican. That’s Nevada. That’s not going to hinge on state taxes, either.

So Democrats are going to have to fight to retain 10 seats they already have, in states like Missouri, Montana, North Dakota, and West Virginia. AND battle to pick up one in Nevada. Maybe they can do a long shot in Mississippi, Tennessee, Nebraska, Wyoming, Texas or Utah. They need to be really careful looking at candidates they put up there.

Hey, ya never know.

Just remember that the people who are saying the Democrats will have a great year in the 2018 election also said Hillary Clinton had a lock on the 2016 election.

To be sure, I expect the Democrats to make some pickups in seats. But my base case isn’t that it’s going to be easy for the Democratic party.

So yes, one possible fix is for the Democrats to win the Senate and/or House and start dealing. Of course, they could have started dealing without that, but they decided they wouldn’t be involved in the wheeling-dealing of the bill this time.

So enjoy the result.

MORE PIECES

Twitchy: Gov. Andrew Cuomo calls GOP tax reform plan ‘economic civil war’

The GOP tax plan robs blue states to pay red states.

It is crass, it is ugly, it is divisive, it is an economic civil war.

We believe it is illegal and we will challenge it in court as unconstitutional. pic.twitter.com/LWTSgIR9jz

— Andrew Cuomo (@NYGovCuomo) January 4, 2018

I am really looking forward to my tax money being wasted on this lawsuit. I hope it doesn’t even make it to the Supreme Court, and it gets laughed out at the lowest possible court.

NYT op-ed: Can States Fix the G.O.P. Tax Law?

No. The states can’t make the federal government do diddly. That’s called federalism. Perhaps you should look into it.

Ok, fine, here’s an excerpt:

The third approach is for states to file a lawsuit challenging the constitutionality of the tax law. Mr. Cuomo said on Wednesday that he would file such a suit, claiming that the provision limiting deductibility of state and local taxes amounts to double taxation. Other officials, including the governor-elect of New Jersey, Phil Murphy, are considering similar legal action. But experts say that such lawsuits are unlikely to succeed because they ask courts to read the 16th Amendment, which authorized the federal income tax, very broadly. Further, Congress already restricts the use of the state and local tax deduction through the alternative minimum tax, says Kim Rueben of the Urban-Brookings Tax Policy Center. The new law will reduce the number of people who end up paying the alternative minimum tax.

I have actually gotten hit with the AMT one year. It’s like some black magic as to whether I get hit with it – a combo of my state/property taxes, tax-advantaged medical expenditures, and other stuff.

To be sure, the year I got hit with the AMT, the difference was only a few hundred dollars. Not much skin off my nose.

It’s always been people in states like CT and NY that have been hit with the AMT.

The states are not going to be able to get around the IRS with “one cool trick”. The NYT op-ed also notes some extremely bad aspects of a payroll tax that would make it unworkable in union-heavy states… which NY definitely is.

I have a modest proposal for the high-tax states who want to lessen the burden of federal taxes on their residents:

• advocate for a smaller, less revenue-hungry federal government

There ya go. Let me know when you get on that.