Taxing Tuesday: Huzzah! Long Live the SALT cap!
by meep
(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.
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 TaxpayersWisconsin 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 2020A 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
- This is the least tax-friendly state in America — and California doesn’t even crack the top 10
- naked capitalism: The Implementation Flaw in Warren’s Wealth Tax – this site is a bunch of socialists…. but they see the problem, too: ‘“Assume effective IRS enforcement on the super rich.” Good luck with that.’ — now, the author is pro-eat-the-rich, but they don’t understand who the rich will be under socialism. Just the fat cats in power. And yes, there are a lot more fat cats in the U.S. than are in any meaningful political power. Just see how unsuccessful people like Michael Bloomberg are in grabbing guns and sodas.
- And a Republican is born? NYT reporter rips NY’s onerous taxes: ‘what a scam’ — that reminds me of a repeated convo long, long ago – someone who had just started her first W-2 payroll job — “Before I started working, I thought I’d vote Republican, but after seeing how much is taken out of my paycheck, I’m DEFINITELY voting Republican.” Too bad there are no Republicans to vote for in NYC. The RPMs on Teddy Roosevelt’s corpse must be readying him for takeoff.
- John Bury: State Tax Burdens Ranked by Kiplinger
- ProPublica: IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor
- Tax Foundation: Booker’s Plan to Eliminate Step-up in Basis and Expand the Estate Tax
- NYT – Greg Mankiw: Why Elizabeth Warren will fail to shine in her moment on the trail – partly about her wealth tax proposal
- New York judge rules Trump must turn over tax returns for hush money investigation
- Wirepoints: Illinois’ shrinking tax base: State is a national outlier when it comes to losing wealthy residents (Part 4)
- Mish: Escape Illinois: Get The Hell Out Now, We Are
- Greg Hinz in Crain’s Chicago: Higher taxes? Groups warn of impact from a sweetened teacher offer.
- Warren proposes steep lobbying taxes on top U.S. companies
- President Trump Doesn’t Need To Release His Tax Returns — For Now
- Wirepoints: Sham Solution to High Property Taxes Peddled by Cook County Assessor Kaegi and Others
- CBS47 Investigation: Gov. Newsom redirects gas tax money. It won’t fund highways, railway system
- Brookings: A fixable mistake: The Tax Cuts and Jobs Act
- High on Pot Taxes
- Legal Insurrection: Bernie Sanders Unveils ‘Tax on Extreme Wealth’ Plan Which Includes National Wealth Registry
- Will Japan’s Latest Consumption Tax Hike Cause an Economic Slowdown?
- Japan Today: Over 70% worried about economic outlook after consumption tax hike: survey
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
Tax cuts were awesome.
— Sven Henrich (@NorthmanTrader) October 8, 2019
The federal budget deficit for 2019 is estimated at $984 billion, a hefty 4.7% of GDP
The deficit, which has grown every year since 2015, is $205 billion higher than it was in 2018, a jump of 26%.https://t.co/uEwS1j1aXS
RT if you think
sajidjavid</a> should SCRAP the hated DEATH DUTY (Inheritance Tax) as part of his next budget </p>— TaxPayers' Alliance (
the_tpa) October 8, 2019
The faceless E-assessment Scheme is set to be a milestone for taxation reforms in India and is expected to help improve the ease of doing business.
— BJP (@BJP4India) October 8, 2019
The new system will eliminate the human interface in the income tax assessment system & improve taxpayers' ease and convenience. pic.twitter.com/0vsygLyw9U
Doesn't take a genius to work out that if you are going to cut taxes and give loads o' money to public services (Johnson/Javid plan) you are going to have to borrow it.
— Alan Stedman #FBPE (@alanjstedman) October 8, 2019
Useful however, to have IFS confirm it.
PM won't listen.
Experts…https://t.co/pPArWOGIJa
You can tell when Gavin Newsom is lying—because his lips move
— skepticalifornia (@skepticaliblog) October 8, 2019
This money is for the supermassive fiscal black hole of underfunded pensions
NEW TAXES ARE ALWAYS FOR PENSIONS
CA school districts’ expenses for pensions rose 102% from 2013-14 to 2017-18—now $1,020 per student https://t.co/j7uzChaK6O
“For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data.” https://t.co/a5A3DwpkSQ
— Resistbot (@resistbot) October 8, 2019
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]
In Germany taxes on wealth are relatively low, while taxes on income are high. 4/4 pic.twitter.com/qKEpWUpdvu
— Marcel Fratzscher (@MFratzscher) October 8, 2019
Hmm, interesting.
I’m not copying over the next full thread over, but I’ve gotten into this sort of yelling match before —
12. If a former Prime Minster can't get the basics right about why a tax policy went awry, it doesn't inspire confidence that current and future Prime Minsters will be capable of devising and delivering necessary improvements to the UK tax system. NICHE THREAD ENDS.
— Jeremy Cape (@jeremydcape) October 8, 2019
DETAILS MATTER.
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