Taxing Tuesday: Checking In With Worried States
by meep
…worried that they’ll lose money to the feds…HOW DARE THE FEDS TAKE THE MONEY THAT BELONGS TO THEM!!!!
There, there.
CALIFORNIA: WHAT IF THE MONEY LEAVES?
Wealthy exodus to escape new tax rules worries California Democrats
The Republican-backed federal tax bill flipped the tables on a never-ending question for California politicians: Will high taxes lead the state’s wealthiest residents to flee the Golden State for the comparable tax havens of Florida, Nevada and Texas?
Republicans reliably raise that alarm when Democrats advocate for tax increases, like the 2012 and 2016 ballot initiatives that levied a new income tax on very high-earning residents.
But now, with the federal tax bill cutting off deductions that benefited well-off Californians, the state’s Democrats suddenly are singing the GOP song about a potential millionaire exodus.
“People with higher incomes pay a lot more money, and some of them may be tempted to leave,” Gov. Jerry Brown said when he unveiled his 2018-19 budget proposal last week. “This was an assault by the Republicans in Congress against California.”
That fear animates Senate President pro tem Kevin de León’s bill that would allow California residents to write off their state taxes on their federal returns as a charitable deduction, as well as other proposals that Assembly leaders have hinted they’re preparing to offer. De Leon’s bill cleared a second committee this week and is on its way to a vote on the Senate floor. Trump administration officials say it won’t pass muster with the IRS.
Democratic state lawmakers are worried because California relies so heavily on the income taxes it collects from high earners to fund government services. The state’s wealthiest 1 percent, for instance, pay 48 percent of its income tax, and the departure of just a few families could lead to a noticeable hit to state general fund revenue.
You silly people.
Connecticut, at least, is a small state. That they’re affected by the move of one billionaire makes sense.
But if California finances are affected so much by the move of a few rich people… what was that about rich people owning government?
Your tax system is screwed up if it’s too tightly bound to the decisions of a couple people. That’s asking for corruption and all sorts of bad things.
In two reports last month, the Institute for Taxation and Economic Policy found that 11 percent of Californians would wind up with a tax increase because of the federal changes.
Among high income brackets, about 38 percent of Californians who earn more than $877,560 – the top 1 percent – would see a tax hike. About 25 percent of Californians earning between $130,820 and $304,630, also would see a tax increase, according to the tax policy institute.
Will the numbers add up to encourage a high-earning family to leave California?
“The new tax law is kind of like icing on the cake for some who were thinking about moving out of the state,” said Fiona Ma, a Democrat on the tax-collecting Board of Equalization who is running for state treasurer. “If they don’t have to stay here because of work or family, it doesn’t give them a lot of incentive.”
Hmmm. Let me see if I can find these reports.
INSTITUTE FOR TAXATION AND ECONOMIC POLICY STUDIES
So I went wandering through the ITEP site. Reading the pieces, seems they fall smack-dab in the “progressive” area of politics. I am not familiar with the names on their Board of Directors, but it seems pretty clear from their institutional affiliations what their politics are.
That said, I think I’ll be adding them to the Tax Foundation as one of my go-to places to grab analyses, because I don’t actually fault the number-crunching they do. I just happen to have different values than they do. I happen to draw many of the same objective conclusions they do from the numbers. I just happen to think what they think of as “injustice” is not injustice.
I found this piece from them amusing:
Is this at all related to lots of very high income people in California and New York?
Californians will make up 11.2 percent of U.S. taxpayers in 2019, but its residents would pay 15.9 percent of the federal personal income taxes that year under current law. In 2019, California residents see their share of federal income taxes paid increase to 17 percent under the final GOP-Trump tax bill (Table 1).
New Yorkers will make up 6.3 percent of U.S. taxpayers in 2019 but would pay 9 percent of the federal personal income taxes that year under current law. In 2019 residents of New York would see their share of total federal personal income taxes paid climb to 9.8 percent under the final GOP-Trump tax bill.
….
It is unsurprising that the last-minute state and local tax (SALT) deduction compromise to allow both state and local income (or sales) and property taxes capped at $10,000 did little to move the needle in California, New York, and other high tax states given that the average SALT taken in those states by itemizers far exceeds the cap. In California, for example, the average SALT deducted by itemizers under current law is $23,000 and in New York the amount is $26,000.This finding should provide cold comfort to lawmakers representing California, New York, New Jersey, and Maryland who were told the SALT compromise would address their concerns.
I wasn’t able to find the bit referenced in the article (DAMMIT REPORTERS, PROVIDE ENOUGH INFO — EITHER LINK TO THE STUDIES, OR GIVE THEIR NAMES AND DATES), alas.
Going back to the SacBee article:
But State Controller Betty Yee, a Democrat who was a member of the Board of Equalization when it commissioned the Stanford study, said the combination of the state’s high housing prices and the cap on mortgage interest deductions present a different problem than that report considered.
Previously, the state income taxes on high earners only affected residents when their incomes exceeded certain thresholds. If their income depended on stock market gains or bonuses, they didn’t pay the special taxes every year.
Now, they’ll have to budget for the changes in the federal tax law every year, and Yee said that may lead some people to make a different calculation when they decide where to live.
Yeah, I could see that.
Anyway, I found something even more delicious from the policy site.
DON’T CUT TAXES! WAAH WAAH WAAH
So above, we see some bitchery about how much taxes California and New York rich people have to pay (assuming that the states don’t try to get cutesy and help their rich people avoid federal taxes).
So here’s ITEP’s response to the “cleverness” coming out of California and New York.
Oh, this is going to be good.
A bipartisan proposal in Congress to eliminate the new $10,000 cap on federal deductions for state and local taxes (SALT) would cost more than $86 billion in 2019 alone and two-thirds of the benefits would go to the richest 1 percent of households. Unfortunately, “work around” proposals in some states to allow their residents to avoid the new federal cap would likely have the same regressive effect on the overall tax code.
Yes, trying to help rich people avoid federal taxes is not a good look.
The bipartisan bill introduced last week by Reps. Nita Lowey and Peter King from New York would remove the cap on SALT deductions while leaving the other provisions of the Trump-GOP tax law in place. The main result would be to provide well-off households with even larger tax breaks than they have already received under the new federal tax law.
Even in the states that are thought to be hit the hardest by the cap on SALT deductions, it turns out that removing the cap would mainly help the well-off. The seven states most affected by the cap on SALT deductions are California, Connecticut, DC, Maryland, Massachusetts, New Jersey and New York. Using the ITEP microsimulation model, we estimate that more than half of the benefits of the Lowey-King bill would go to the richest one percent in each of these states except for Maryland (where 47 percent of the bill’s benefits would go to the richest one percent of state residents). In California, Connecticut and New York, more than 60 percent of the benefits would go the richest one percent of state residents. In these seven states, the richest five percent of residents would receive between 75 percent of the benefits (in Maryland) and 86 percent of the benefits (in New York). (Download state-by-state data.)
Ah, this must be one of the reports talking about how many rich Californians have to pay more in federal taxes.
Which raises the question: Why exactly should lawmakers rush to change tax law in a way that would mainly help the richest households? These are the very groups that benefited the most from the Trump-GOP tax plan. How can piling on more tax cuts for these households improve the situation?
I agree. Leave the Trump tax cuts as-is. Easy-peasey.
AW YEAH THEY GOT A SPREADSHEET. Anyway, I’m a bit busy right now, so I’m salting that one away for later use. I’ve got plenty of links for pointing and mockery as it is.
CALIFORNIA: GIVE US THE GOODS
Via Twitchy, I see one bright idea from California: using federal tax cuts as an opportunity to raise state taxes.
California Democrats want businesses to give half their tax-cut savings to state
SACRAMENTO — California lawmakers are targeting the expected windfall that companies in the state would see under the federal tax overhaul with a bill that would require businesses to turn over half to the state.
A proposed Assembly Constitutional Amendment by Assemblymen Kevin McCarty, D-Sacramento, and Phil Ting, D-San Francisco, would create a tax surcharge on California companies making more than $1 million so that half of their federal tax cut would instead go to programs that benefit low-income and middle-class families.
“Trump’s tax reform plan was nothing more than a middle-class tax increase,” Ting said in a statement. “It is unconscionable to force working families to pay the price for tax breaks and loopholes benefiting corporations and wealthy individuals. This bill will help blunt the impact of the federal tax plan on everyday Californians by protecting funding for education, affordable health care, and other core priorities.”
I’m really looking forward to Google and Apple getting soaked.
Or not. I assume they’ll figure something out.
Democrats in CA trying to take Federal tax cut savings is only insane until you realize Democrats believe all the money you earn belongs to the government. Individuals & companies only get to keep the wages the state decides to let them keep.
— Common Sense (@Paine_1776) January 20, 2018
And this is the whole deal with the high-tax states trying to reduce the federal tax hit on their residents… because they want (and need) to increase taxes. The more the feds take from their residents, the less they get to (easily) grab.
They keep forgetting the “people may leave” part. And “businesses may leave” part.
SAME OLD SAME OLD
So here’s yet another article going down the same “clever” fixes to the SALT cap.
Rather than going through the payroll tax and “charitable” contribution bit yet again, where they simply assert “Giving money to the government that it’s requiring you to give it is exactly like giving to charity….”
….I’m going to quote the rebutters:
Challenges ahead
The IRS told CNBC that it’s not issuing any statements on these proposals as of now — but the ideas are receiving a fair share of criticism from elsewhere.
“It’s the kind of thing that emerges in an ivory tower with not much thought about the practicality,” said E.J. McMahon, a conservative economist and founder of the Empire Center for Public Policy.
But California Senate leader de León said the California Excellence Fund was modeled after a bill passed in 2014 that permits Californians to donate to a state general fund to support students’ higher education. Those donors receive a tax credit for their federal returns.
…..
Still, critics say that what’s being proposed is different from those existing programs.“These [existing program] contributions produced an actual charitable benefit, whereas the proposals involve a pure tax swap,” said Jared Walczak, senior policy analyst at the Tax Foundation. “The IRS requires that charitable contributions have genuine charitable intent and a charitable outcome.”
Government is not charity.
Government is force.
New Jersey’s proposed program and others like it may pass the charitable intent smell test depending on how they’re structured, advocates said.
“Let’s say you could direct some of the money you paid — if you could say that it went to cops, to schools — then it’s not really a tax, it’s a charitable contribution,” said Stanford Law School’s Bankman. “With current taxes, none of the money can be directed. But here it can be.”
Giving to the cops to pay their salaries is not charity.
Giving to cops’ pension funds (and they need it) is not charity.
It doesn’t matter if you can “direct” it.
(By the way, I’m writing this while I’m trying to install TurboTax to do the 2017 taxes. I’m likely going to have to hire somebody to do my taxes next year if New York decides to be too “clever”. My finances currently aren’t that complicated, in terms of tax structure….and New York is looking to make my life considerably more difficult. If they do that payroll tax thing, I think they will find it will be extremely ugly.)
Mujica said he is not worried about challenges from the federal government.
“We’re going to draft legislation that can withstand any legal tests,” he said.
You mean, the legal test of the U.S. Congress changing the laws so it no longer pertains? That legal test?
Yeah, you keep insisting that yup, it will work so you can keep all the rich people’s taxes to yourself. I’m sure that will work.
It puts me in mind of the old Steve Martin bit where he talks about becoming a millionaire and paying no taxes.
You.. can be a millionaire.. and never pay taxes!
You can be a millionaire.. and never pay taxes!You say.. “Steve.. how can I be a millionaire.. and never pay taxes?”
First.. get a million dollars.
Now.. you say, “Steve.. what do I say to the tax man when he comes to my door and says, ‘You.. have never paid taxes’?”
Two simple words. Two simple words in the English language: “I forgot!”
Similarly: “We thought it would work!” or “We thought we could get around the intent of your law!” is not going to be the most convincing way to change your state law to try to impose on federal law.
WHAT IF THE STATES END UP WITH MORE MONEY?
Mind you, I’m not talking about California or New York here.
There was an amusing little piece in Governing Magazine back in December.
The Federal Tax Overhaul May Boost States’ Bottom Lines, But Some Governors Don’t Want the Money
States may soon see an unexpected windfall of tax revenue as a byproduct of the federal tax law, but several governors have said they don’t want the money.
….
But states could find themselves collecting more money, because Congress eliminated or reduced many popular tax deductions, allowing more income to be taxed.At the federal level, Congress tried to offset those provisions by lowering tax rates and raising the standard deduction. States often follow the federal government’s calculations for determining how much income should be taxed, but, unlike Congress, they have not changed their tax rates to reflect the smaller level of deductions.
I’m sure many of these states are crying.
And this’ll learn them to piggyback on federal tax policy, if they’re so concerned. I think this is a great opportunity for them to decouple and simplify their tax regimes.
In Connecticut, top officials in the administration of Gov. Dannell Malloy are warning that an expected revenue bump from the federal tax changes could paper over significant problems with the state’s tax structure that still need to be addressed. The state projects it will face deficits of $1.9 billion in 2019-20 and $2.7 billion in 2021-22.
“There’s nothing about these [federal] tax changes that are going to turn things around for us in the next 18 months,” Malloy’s budget director, Office of Policy and Management Secretary Ben Barnes, told the Connecticut Mirror. “I’m concerned that the short-term disruption may give the legislature the mistaken impression we don’t need to address the deteriorating revenues.”
Oh, Connecticut. I wouldn’t be betting on getting anything extra. Barnes is absolutely right.
And for a final guffaw, I’m just going to link to this and not excerpt it.
Why do Californians pay more state and local taxes than Texans?
I’m sure they’ll figure it out.
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