> New York recently began allowing taxpayers to convert local property taxes into charitable contributions, which are fully deductible from federal taxes. Other states, like New Jersey and Connecticut, have been moving forward with similar plans to reclassify state taxes as charitable contributions.
If they consider their taxes a charitable contribution I should be able to decide to not pay it.
I know a lot of charities I’d rather give money to then the government.
Wait, property and state taxes are already deductible on federal 1040, right? So why are the states even doing this? The article is paywalled so surely I’m missing some info here.
> The I.R.S. warning comes in response to states, like New York, that have looked for ways to blunt the impact of a new $10,000 cap on the state and local tax deduction, known as SALT. The cap, which was included in last year’s $1.5 trillion Republican tax overhaul, hit predominantly Democratic, high-tax states hardest since it limits the amount of state and local sales, income and property taxes that residents can deduct from their federal taxes.
Last year's tax reform put a cap on that, which is highly inconvenient to people living in high tax, high income or high property value states like California, New York, etc.
The tax reform hit many places hard. You can only deduct the first $10,000. Every suburb of NYC has an average property tax of over $10k, plus most people pay state income tax. These people are doubly impacted by the higher standard deduction, which makes it difficult for all but the wealthy to deduct.
What does population have anything to do with it? It's based on income. The fact that more densely populated places have higher per capita service costs is the problem.
Not sure I follow. The wealthier have higher incomes and higher property taxes due to buying more expensive homes.
The $10,000 cap hits them even harder.
The 2017 standard deduction for married couples was $12,700 (compared to $24K in 2018). So the average homeowner also gets an additional $11,300 tax free. Granted so do non-homeowners.
I don't think the "average homeowner" would complain that they can't take as big of a homeowners deduction when the net result is they are exempting a larger portion of their income regardless.
> If they consider their taxes a charitable contribution I should be able to decide to not pay it
You still owe regular property taxes, with all the standard penalties for non-payments. What these laws do is give "municipal and county governments and school districts the legal authority to create special charitable accounts" and then let "local governments offer residents who contribute to the new accounts a nearly dollar-for-dollar property-tax credit, effectively turning their property tax bill, at least on paper, into a charitable contribution" [1].
Your contribution to the charitable account is voluntary. Your property-tax obligation is not.
> I would be surprised to see a judge take kindly to that type of nonsense
We're a nation of laws. Not taking kindly to a case isn't justification for a ruling. The tax law was haphazardly drafted and written specifically to increase wealth transfers from surplus states (e.g. Delaware, Minnesota and New Jersey) to deficit states (e.g. New Mexico, Mississippi and West Virginia) [1]. I see valid arguments for both sides.
The SALT deduction was a handout to the most affluent and a subsidy to the wealthiest states. It allowed them to increase their state and local taxes at the expense of federal revenue, spreading that burden across the country.
The tax plan certainly had flaws, but capping SALT was egalitarian IMO.
Spreading that burden to states which have a negative contribution to the fed? The states that utilized SALT on net contribute more in tax to the fed gov't than they take in spending.
When California raised their income tax several years ago, they reduced federal revenue because of SALT. For example, $1 billion in new state taxes would reduce federal revenue by ~$300 million. That shortfall must then be covered by the whole country.
> That shortfall must then be covered by the whole country.
When Mississippi cuts benefits for its residents, my federal tax dollars pay for their disability insurance. When West Virginia fails to regulate its industry, educate its residents or build infrastructure, my tax dollars subsidise their choices. TL; DR It is odd to talk about subsidy when they generally flow from those hit by the SALT cap to those benefiting from this bill.
I don't understand what you're arguing for here, why should affluent CA/NY/CT tax payers receive a tax break paid for by everyone else? How would you argue for the SALT deduction if it never existed in the first place?
I also don't see why it's a problem that some states are donors, they have more to give. Federal spending should be progressive, otherwise it simply drives more inequality.
I won't argue for SALT per se. I do have an issue with the political logic the Congress used in singling out Democratic states. Furthermore, the bill as a whole was regressive. Arguing for the progressive lifting of a specific subsidy, within the general context of a regressive bill that increases interstate subsidies, is hypocrisy. So is requiring food stamp recipients to undergo a battery of expensive tests while their analogs at governmental level get increased handouts.
You can certainly convincingly argue that, but to retain a coherent argument you also now need to tell me how it’s egalitarian that all the states hit by this overwhelmingly contribute more to federal tax coffers per capita (and hence are subsidizing) the states where the $10k cap will have no impact.
Same reasoning actually, they contribute more because they have more. Federal income tax is per person and progressive, so states with wealthier residents will always pay more.
What does it mean for a state to be affluent? The goods and services governments purchase are presumably purchased in their local markets. It’s not as if a $60k New York police officer or bureaucrat stops more crime, pushes more paper, or lives better than his $30k counterpart in Alabama. It’s not as if a public housing project that builds 10 efficiency studios at $500k each represents a higher level of public service than one that provisions 10 $50k mobile homes. I agree that certain areas have higher and lower concentrations of genuine wealth but a progressive income tax curve already takes care of that. SALT was more like a crude approximation of a cost of living adjustment.
If you donate money to a charity, you get to deduct that from your income for determining your tax obligation.
If you have long term capital gains on a stock, you can donate that stock and not pay tax on the long term capital gains. Additionally, the full value of the stock counts against your income for determining tax.
This would be a quid pro quo contribution, already prohibited by the IRS. It's hard to see this "charitable conversion" nonsense as anything other than (potentially criminal) tax evasion.
That's an oversimplification. "A quid pro quo contribution is a payment made to a charity by a donor partly as a contribution and partly for goods or services provided to the donor by the charity" [1]. In this case, the charity isn't providing the quid pro quo, the local government is.
States are already allowed to let one deduct charitable contributions from state taxes however they like. And visiting a park one donates to isn't considered quid pro quo. These cases will be complicated and interesting.
I don't think you're understanding how this is being constructed: the money wouldn't be going to the government (i.e. directly to the department of finance), precisely for the reason you're describing. That's why they're floating the idea of establishing charitable institutions under a kind of trusteeship in the municipalities as per the bylaws of what those shell entities will be.
EDIT: Stated specifically, for NY: "The Budget establishes a charitable gift trust fund in the joint custody of the New York State Commissioner of Taxation and Finance and the State Comptroller."
Hence my argument for the lack of a quid pro quo. The charity gets the quid; someone else provides the pro quo. How states and municipalities count their tax obligations could be argued to be local issues, from a Tenth Amendment perspective. (We just had a landmark anti-commandeering case get decided on by SCOTUS.)
> How is the charity and the government not the same entity?
Charities and municipal governments are legal fictions of the states. I do not know the specifics of how these charities are set up. I presume they are ownerless non-profits. (If not, the New Jersey legislature could simply create such an entity type.) Determining common control with municipalities will be tricky.
That they are creatures of the states, and not the federal government, is what will make the lawsuits interesting. The most realistic pathway for the IRS would be to argue these charities do not qualify as such under federal tax law. How they will do this, within the confines of the 10th Amendment and a haphazardly-written tax code, without hitting other charities, will be delicate and complicated.
In the case of school districts, easily the largest line item of the SALT liability for New Yorkers, The quo would be educational services. Anyone who donates to one of these "charities" and then puts a child in the school system could be at serious risk for tax evasion. It doesn't matter legally if the "charity" is also floated by other revenue streams. It's about what the filer claims and what he receives. I am pretty sure the IRS has a history of formulas to apply for figuring out how much is rendered in services[0]. Per pupil expenditure would be a likely candidate. Perhaps those with no children in the system would be safe.
The analogy with the church would be if they were giving your child a free or discounted on religious school admission as a contingency of how much money you donate. You can't write off donations like that[1]
[1] https://www.irs.gov/publications/p526#en_US_2017_publink1000... - "Contributions From Which You Benefit": .... "Tuition, or amounts you pay instead of tuition. You can't deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. You also can't deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a "donation."
All of this has been tried before with folks trying to funnel profits into charities. The IRS is going to say "no, we're considering these entities to be a single entity" and they may even say "and furthermore it's criminal tax evasion and you're all going to prison."
This is a news article about a notice they've just issued indicating as much.
The law is not a computer program. Being clever about definitions does not often have pleasant results. This approach is unlikely to work.
The IRS is powerful. But so are the states. If you think this is a simple case, you're mis-understanding it. Fully expect this to go to the Supreme Court.
The IRS previously said these types of programs were fine [1], although in a way intended not to set prescedent. There are a lot of other cases referenced in the memo, some of which probably did set some prescedents. State governments could easily set up targeted funds, if just dropping the money into the general fund is a non-starter.
"Bill Russell called me one time… He says, “Charles Barkley.” I said, “Yes, sir, Mr. Russell.”
“You grew up in Alabama. Right?” I said, “Yes, sir.”
He says, “Did you go to public school?” I said, “Yes, sir.”
He says, “Did the cops ever come to your neighborhood?” I said, “Yes sir.”
He said, “Any of the houses ever on fire and the firemen come?” I said, “Yes, sir.”
He said, “I don’t want to see your black ass on TV complaining about your taxes anymore.” I says, “What do you mean?”
He says, “So now that you got money you don’t want to help other people out, but when you were poor, other people took care of you.” And I says, “You know what, Mr. Russell, you will never hear me complain about my taxes again.”
And it was a very interesting lesson for me, because I do think rich people should pay more taxes. I’m blessed to be one of them, and we should pay more in taxes. I learned my lesson. I never complain about taxes.
----------
"I like to pay taxes. With them, I buy civilization"
-- Oliver Wendell Holmes
That people who complain about taxes get some utility from the government activities funded by these taxes does not imply that they are better off with the combination of the services and the taxes than without. If this argument is meant to show that people should not complain about taxes, then it is invalid.
"...The $10,000 cap was imposed as a way to offset some of the cost of other individual and business tax cuts.
The Treasury Department and the I.R.S. are worried that the workarounds could further balloon the cost of the tax cuts, which are projected to add more than $1 trillion to the national debt over a decade."
Describing this as likely to 'further balloon' the cost of tax cuts seems inaccurate and misleading - the cost remains precisely the same, it's an attempt by certain high-tax states to avoid a tax increase designed to partially offset the static cost.
Additionally, the CBO recently recalculated the long-term cost of the tax cuts to be $440 billion due to the changes in economic growth after the tax cuts came into effect. The NYT article is ignoring the more recent $440b April estimate in favor of citing the trillion dollar December estimate.
"For the 2018–2027 period, CBO now projects a cumulative deficit that is $1.6 trillion larger than the $10.1 trillion that the agency anticipated in June. Projected
revenues are lower by $1.0 trillion, and projected outlays
are higher by $0.5 trillion."
"Laws enacted since June 2017—above all, the three mentioned above—are estimated to make deficits $2.7 trillion larger than previously projected between 2018 and 2027, an effect that results from reducing revenues by $1.7 trillion (or 4 percent) and increasing outlays by $1.0 trillion (or 2 percent). The reduction in projected revenues stems primarily from the lower individual income tax rates that the tax act has put in place for much of the period. Projected outlays are higher mostly because the other two pieces of legislation will increase discretionary spending. Those revenue reductions and spending increases would result in larger deficits and thus in higher interest costs than CBO previously projected."
Thanks for the completely unsourced editorial from a really trash biased source, but it definitely requires that you don't read a single word from the CBO report.
You're citing an IBD article (yeah, the one with "It's official!" in its title) which is inferring stuff from CBO, which doesn't claim that $440M at all in the link you posted. You get it by playing games with revenue and attributing every single dollar of the change to "the tax cut".
That's not economics. Tax policy never is, but this is especially bad work.
To arrive at $440 billion, IBD argues that the tax plan cut tax revenue by $1.69 trillion but caused GDP growth producing $1.1 trillion in new revenue. However, the $1.69 trillion figure already factored in GDP growth, so they double counted.[1] I'm surprised that they made such a basic mistake. You should read less IBD and more NYT.
[1] CBO Appendix A, page 93: "Legislative changes... led CBO to increase its projection of the cumulative deficit over the 2018–2027 period by $2.7 trillion. Those changes were offset in part by the effects of revisions to CBO’s economic forecast, which led to $1.0 trillion in reductions to projected deficits, almost entirely because of increased projections of revenues."
No, from the perspective of the federal budget (c.f. Treasury and IRS, the entities "worried" here) it will absolutely decrease revenue and "further balloon the cost of the tax cuts". It's true that the loss would be to the states' tax revenue and not the taxpayers, but I don't see why that merits the kind of spin you're trying.
Yeah. The truth is that before, local and state governments could effectively carve out their tax revenues out of the federal government's tax revenues, with limited impact on what their constituents would pay in total tax.
That ended with this tax cut.
So now these states have a choice : either their constituents are actually made to pay for the budgets of these governments (much more so than before, at least), or they limit their spending to the value of the SALT deduction.
What spin you want to put on this, feel free to do it, but let me give you some ideas.
"Federal government no longer to pay for California/Illinois/... pensions !"
"States now responsible for the money they spend"
Or, how about:
"Federal government imposes massive budget cuts on democratic governments !"
"Costs of Trump tax cut unilaterally imposed on state governments !"
For one, those states were already net positive contributors to the Federal budget - they gave more revenue than they received in benefits. Personally I don't mind kicking in more tax revenue to the commons when it's something that benefits everyone, but to fund corporate tax cuts on companies which already give too little as a whole, as well as other states which lower their taxes to give even more to those companies is counterproductive for the nation as a whole.
Enough of a push for some states to grow a backbone, stand up for their citizens, and work towards expelling this ever-consuming totalitarian USG? Nah, probably not.
Some states often stand up for their citizens, and with a Democratic NY governor versus Trump and the GOP, I have zero doubt NY will fight this to the extent the laws and courts allow. Trump is strongly and actively disliked in his home state.
We are to pick this as a topic to fight back on? How about fighting back on law requiring people to purchase a product that they don’t want? No, USG says I have to have insurance while I don’t use doctors in network because they are worth less than WebMD. Instead I go to a doctor that I pay $160 out of pocket for a full hour visit that keeps notes on me that help to inform my future care.
Fighting what largess the USG wants to afford in deductions is silly. They could say there is 0 deduction for State taxes and be within their rights. NY is sulking because their government has gotten so out of hand that they have to strangle their citizens to avoid total default.
I share your gripe, but I brought it up around this topic because interest of the states and USG are in a bit of conflict. The local governments know that once people aren't able to deduct as much of their real estate rent, they'll be pushing to get their rent lowered.
Aren't networks and medical insurance a problem across the board? I've had that problem on employer provided insurance plenty of times... it's got nothing to do with the federal requirements, it's just how dorked up the medical industry is.
I get what your'e saying but the details if what you describe is the a whole healthcare industry issue. Too often I see "OMG THIS IS THEIR FAULT" no it's just how the insurance industry is and nobody has a backbone enough to deal with that tangled mess. This networks and providers have been an issues since before any federal requirement(s).
Here’s where it is their fault. I quit my job, moved to Florida. I figured my wife and I could get a high deductible plan like my former employer provided, and save $100/month into our new HSA all for $400. We had a plan picked out from Florida Blue. Then, bam! I couldn’t get that plan anymore. Federal regulators required baseline features that moved that plan to, and I shit you not, $730. That’s more than my mortgage. So we used my wife’s company plan. No HSA. No asset accumulation. Just pure cost. Her doctor, same as mine, is not in network and does not take insurance. So that’s $1,500 a year that doesn’t go to the yearly 12k deductible.
TLDR: the tax reform bill put a cap on deducting state and local taxes, which were previously fully deductible. Now you can only deduct $10k between property tax and state income taxes.
Residents of CA, NY, NJ, etc. easily hit these limits, so some of these states are giving residents other ways to effectively pay their state/local taxes while maintaining full deductibility for federal tax purposes.
Now the IRS is trying to fight back against these rules. But the IRS will have a difficult time drawing distinctions between the existing allowed deductions and the novel deductions they are trying to exclude.
As a (former) tax lawyer, I agree that this is an uphill battle for the IRS. If the states do a good job of creating alternatives to state income taxes, the IRS will have a very tough time defeating them in court.
It's interesting to see the Republican administration attempting to close these "loopholes" and heavily-Democrat states arguing in favor of said "loopholes". Quite a role-reversal!
Capping the state and local tax deduction isn’t closing a loophole. It’s punishing blue states for funding social services and state government via state taxes.
Classifying local taxes as "charitable contributions"? I'm really on the fence about this.
On the one hand, it seems an absurd and grossly inaccurate characterization, borderline lying and definitely tax evasion.
On the other hand, there's this:
"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."
Also, someone needs to tell the IRS that they don't get to dictate Federal law. The legislative branch decides the laws, the judicial branch interprets them. The IRS is neither.
Not really. The IRS is enacting the law Congress gave them, as it's supposed to. You can disagree with that law (I do) but I don't see them stepping outside their constitutional authority
In spirit, yes, but I think this is a matter of debate and ultimately will need to be decided by the tax courts. The states are following the letter of the law but definitely circumventing the spirit of the law. This really comes down to how much leeway the Federal government, more specifically the tax courts, gives the IRS.
An obvious solution (though not necessarily a good idea) is to raise state corporate taxes to offset the federal cuts and lower state individual rates correspondingly.
It's wild to watch the Democrats argue in favor of preserving tax advantages for the top income tiers. Ie arguing for regressive tax policies and for preventing taxes from going up to where they should be on high income persons. And not just argue, but invent ridiculous schemes to try to maintain that special tax treatment for well-off people.
88% of the SALT deductions were going to households earning over $100,000. 1% were going to households earning $50,000 or less. The tilt is obvious: this was a tax benefit for better off persons, a way for higher income earners to avoid paying the full high tax rates in states like New York and California.
This is an extremely ugly hypocrisy as it pertains to what their platform is supposedly all about. I've yet to see very many prominent people on the left, either politicians or media, call it out. It also defangs the left's ability to pursue Republicans for their favoritism toward high income brackets regarding taxes: they're plainly arguing & working to preserve a tax cut for higher income earners.
The SALT cap clearly impacts lower-middle class and middle class home owning residents of California and New York (in addition to higher income earners). This had zero to do with tax reform and was 100% punishment for states that did not vote for Trump.
Why are property taxes in NY state so high? I moved to upstate NY a few years ago for work, and while houses are cheaper than in CA, property taxes are far higher ($20K in property taxes per year for a $500K home). Some people I know are paying even $30-40K in property taxes per year. I was excited about the cheaper home prices in this area, but now that I am finally thinking about buying a home, it is fairly difficult if one includes the property taxes (without taking into consideration deduction schemes).
72 comments
[ 6.5 ms ] story [ 148 ms ] threadIf they consider their taxes a charitable contribution I should be able to decide to not pay it.
I know a lot of charities I’d rather give money to then the government.
> The I.R.S. warning comes in response to states, like New York, that have looked for ways to blunt the impact of a new $10,000 cap on the state and local tax deduction, known as SALT. The cap, which was included in last year’s $1.5 trillion Republican tax overhaul, hit predominantly Democratic, high-tax states hardest since it limits the amount of state and local sales, income and property taxes that residents can deduct from their federal taxes.
It’s subsidizing sparsely populated states that either don’t need to or don’t care to provide the state/local services that populated places need.
But you need to clear $24k in deductions (as a married couple) to even take that deduction.
The average homeowner loses, as they can’t cross the threshold, and every marginal state/local tax dollar costs 15-25% more than it did before.
I don't think the "average homeowner" would complain that they can't take as big of a homeowners deduction when the net result is they are exempting a larger portion of their income regardless.
You still owe regular property taxes, with all the standard penalties for non-payments. What these laws do is give "municipal and county governments and school districts the legal authority to create special charitable accounts" and then let "local governments offer residents who contribute to the new accounts a nearly dollar-for-dollar property-tax credit, effectively turning their property tax bill, at least on paper, into a charitable contribution" [1].
Your contribution to the charitable account is voluntary. Your property-tax obligation is not.
[1] http://www.njspotlight.com/stories/18/05/06/new-law-lets-loc...
We're a nation of laws. Not taking kindly to a case isn't justification for a ruling. The tax law was haphazardly drafted and written specifically to increase wealth transfers from surplus states (e.g. Delaware, Minnesota and New Jersey) to deficit states (e.g. New Mexico, Mississippi and West Virginia) [1]. I see valid arguments for both sides.
[1] https://www.economist.com/graphic-detail/2011/08/01/the-red-...
The tax plan certainly had flaws, but capping SALT was egalitarian IMO.
When Mississippi cuts benefits for its residents, my federal tax dollars pay for their disability insurance. When West Virginia fails to regulate its industry, educate its residents or build infrastructure, my tax dollars subsidise their choices. TL; DR It is odd to talk about subsidy when they generally flow from those hit by the SALT cap to those benefiting from this bill.
I also don't see why it's a problem that some states are donors, they have more to give. Federal spending should be progressive, otherwise it simply drives more inequality.
Even a flat tax wouldn't change that.
If you have long term capital gains on a stock, you can donate that stock and not pay tax on the long term capital gains. Additionally, the full value of the stock counts against your income for determining tax.
This type of nonsense is all over our tax code.
https://www.irs.gov/charities-non-profits/substantiating-cha...
States are already allowed to let one deduct charitable contributions from state taxes however they like. And visiting a park one donates to isn't considered quid pro quo. These cases will be complicated and interesting.
[1] https://www.irs.gov/charities-non-profits/substantiating-cha...
EDIT: Stated specifically, for NY: "The Budget establishes a charitable gift trust fund in the joint custody of the New York State Commissioner of Taxation and Finance and the State Comptroller."
[0] https://www.budget.ny.gov/pubs/archive/fy19/enac/enacted-tax...
Hence my argument for the lack of a quid pro quo. The charity gets the quid; someone else provides the pro quo. How states and municipalities count their tax obligations could be argued to be local issues, from a Tenth Amendment perspective. (We just had a landmark anti-commandeering case get decided on by SCOTUS.)
Here's a clearer quid pro quo: churches.
Charities and municipal governments are legal fictions of the states. I do not know the specifics of how these charities are set up. I presume they are ownerless non-profits. (If not, the New Jersey legislature could simply create such an entity type.) Determining common control with municipalities will be tricky.
That they are creatures of the states, and not the federal government, is what will make the lawsuits interesting. The most realistic pathway for the IRS would be to argue these charities do not qualify as such under federal tax law. How they will do this, within the confines of the 10th Amendment and a haphazardly-written tax code, without hitting other charities, will be delicate and complicated.
In the case of school districts, easily the largest line item of the SALT liability for New Yorkers, The quo would be educational services. Anyone who donates to one of these "charities" and then puts a child in the school system could be at serious risk for tax evasion. It doesn't matter legally if the "charity" is also floated by other revenue streams. It's about what the filer claims and what he receives. I am pretty sure the IRS has a history of formulas to apply for figuring out how much is rendered in services[0]. Per pupil expenditure would be a likely candidate. Perhaps those with no children in the system would be safe.
The analogy with the church would be if they were giving your child a free or discounted on religious school admission as a contingency of how much money you donate. You can't write off donations like that[1]
[0] https://www.irs.gov/pub/irs-pdf/f8283.pdf
[1] https://www.irs.gov/publications/p526#en_US_2017_publink1000... - "Contributions From Which You Benefit": .... "Tuition, or amounts you pay instead of tuition. You can't deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. You also can't deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a "donation."
This is a news article about a notice they've just issued indicating as much.
The law is not a computer program. Being clever about definitions does not often have pleasant results. This approach is unlikely to work.
The IRS is powerful. But so are the states. If you think this is a simple case, you're mis-understanding it. Fully expect this to go to the Supreme Court.
[1] https://www.irs.gov/pub/irs-prior/p526--2011.pdf
Charles Barkley:
"Bill Russell called me one time… He says, “Charles Barkley.” I said, “Yes, sir, Mr. Russell.” “You grew up in Alabama. Right?” I said, “Yes, sir.” He says, “Did you go to public school?” I said, “Yes, sir.” He says, “Did the cops ever come to your neighborhood?” I said, “Yes sir.” He said, “Any of the houses ever on fire and the firemen come?” I said, “Yes, sir.” He said, “I don’t want to see your black ass on TV complaining about your taxes anymore.” I says, “What do you mean?” He says, “So now that you got money you don’t want to help other people out, but when you were poor, other people took care of you.” And I says, “You know what, Mr. Russell, you will never hear me complain about my taxes again.”
And it was a very interesting lesson for me, because I do think rich people should pay more taxes. I’m blessed to be one of them, and we should pay more in taxes. I learned my lesson. I never complain about taxes.
----------
"I like to pay taxes. With them, I buy civilization" -- Oliver Wendell Holmes
The Treasury Department and the I.R.S. are worried that the workarounds could further balloon the cost of the tax cuts, which are projected to add more than $1 trillion to the national debt over a decade."
Describing this as likely to 'further balloon' the cost of tax cuts seems inaccurate and misleading - the cost remains precisely the same, it's an attempt by certain high-tax states to avoid a tax increase designed to partially offset the static cost.
https://www.cbo.gov/publication/53651
https://www.investors.com/politics/editorials/trump-tax-cuts...
"Laws enacted since June 2017—above all, the three mentioned above—are estimated to make deficits $2.7 trillion larger than previously projected between 2018 and 2027, an effect that results from reducing revenues by $1.7 trillion (or 4 percent) and increasing outlays by $1.0 trillion (or 2 percent). The reduction in projected revenues stems primarily from the lower individual income tax rates that the tax act has put in place for much of the period. Projected outlays are higher mostly because the other two pieces of legislation will increase discretionary spending. Those revenue reductions and spending increases would result in larger deficits and thus in higher interest costs than CBO previously projected."
Thanks for the completely unsourced editorial from a really trash biased source, but it definitely requires that you don't read a single word from the CBO report.
That's not economics. Tax policy never is, but this is especially bad work.
[1] CBO Appendix A, page 93: "Legislative changes... led CBO to increase its projection of the cumulative deficit over the 2018–2027 period by $2.7 trillion. Those changes were offset in part by the effects of revisions to CBO’s economic forecast, which led to $1.0 trillion in reductions to projected deficits, almost entirely because of increased projections of revenues."
That ended with this tax cut.
So now these states have a choice : either their constituents are actually made to pay for the budgets of these governments (much more so than before, at least), or they limit their spending to the value of the SALT deduction.
What spin you want to put on this, feel free to do it, but let me give you some ideas.
"Federal government no longer to pay for California/Illinois/... pensions !"
"States now responsible for the money they spend"
Or, how about:
"Federal government imposes massive budget cuts on democratic governments !"
"Costs of Trump tax cut unilaterally imposed on state governments !"
They're all true, sort of.
Fighting what largess the USG wants to afford in deductions is silly. They could say there is 0 deduction for State taxes and be within their rights. NY is sulking because their government has gotten so out of hand that they have to strangle their citizens to avoid total default.
I get what your'e saying but the details if what you describe is the a whole healthcare industry issue. Too often I see "OMG THIS IS THEIR FAULT" no it's just how the insurance industry is and nobody has a backbone enough to deal with that tangled mess. This networks and providers have been an issues since before any federal requirement(s).
Residents of CA, NY, NJ, etc. easily hit these limits, so some of these states are giving residents other ways to effectively pay their state/local taxes while maintaining full deductibility for federal tax purposes.
Now the IRS is trying to fight back against these rules. But the IRS will have a difficult time drawing distinctions between the existing allowed deductions and the novel deductions they are trying to exclude.
As a (former) tax lawyer, I agree that this is an uphill battle for the IRS. If the states do a good job of creating alternatives to state income taxes, the IRS will have a very tough time defeating them in court.
It's interesting to see the Republican administration attempting to close these "loopholes" and heavily-Democrat states arguing in favor of said "loopholes". Quite a role-reversal!
Edit: clarified language in last paragraph
When I said “enforce” loopholes I meant they are trying to defeat them.
On the one hand, it seems an absurd and grossly inaccurate characterization, borderline lying and definitely tax evasion.
On the other hand, there's this:
"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."
Also, someone needs to tell the IRS that they don't get to dictate Federal law. The legislative branch decides the laws, the judicial branch interprets them. The IRS is neither.
88% of the SALT deductions were going to households earning over $100,000. 1% were going to households earning $50,000 or less. The tilt is obvious: this was a tax benefit for better off persons, a way for higher income earners to avoid paying the full high tax rates in states like New York and California.
This is an extremely ugly hypocrisy as it pertains to what their platform is supposedly all about. I've yet to see very many prominent people on the left, either politicians or media, call it out. It also defangs the left's ability to pursue Republicans for their favoritism toward high income brackets regarding taxes: they're plainly arguing & working to preserve a tax cut for higher income earners.