State Democrats Fight to Protect Abused Wealthy Taxpayers From Their Own Misguided Tax Policies

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Posted by Tyler Tate on Friday, January 19th, 2018, 9:46 AM PERMALINK

State Democrats Fight to Protect Abused Wealthy Taxpayers From Their Own Misguided Tax Policies

Since the passage of the Tax Cuts and Jobs Act of 2017, high tax states like California, New York, and New Jersey have been scrambling to respond to the $10,000 cap placed on deducting state and local taxes (SALT) from federal income taxes. Rather than cutting bloated state government spending and reducing taxes, Democrat politicians in these states are trying to find wacky ways around the cap. Here are several of the most insane proposals put forward by tax-and-spend Democrats:

California: Liberal Democrat Senator Kevin De Leon has proposed legislation to create a "California Excellence Fund." Instead of paying state income taxes as a result of the cap on SALT, California residents would "donate" the additional amount owed in taxes to this fund and receive an equal credit that would cover the cost of their state income taxes. Because charitable contributions are tax deductible on federal income taxes, this proposal in theory would preserve the deduct-ability of state income taxes.

However, De Leon's proposal would almost certainly violate the IRS definition of what qualifies as a charitable donation. According to the non-partisan Tax Foundation, IRS Publication 526 specifies that a “charitable contribution” only qualifies as such to the extent the contributor does not benefit from the act of charity. Given this definition, a “charitable” contribution that is made solely to replace an equivalent state tax liability would not comply with this IRS rule.

De Leon’s proposal to protect wealthy taxpayers from his own party’s misguided policies is no surprise, given that California has the highest top income tax rate in the country, at 13.3%

New York: Democrat Governor Andrew Cuomo is considering partially replacing the state income tax with an equally costly payroll tax. Under this idea, your employer would cut your paycheck by the amount you pay in state income taxes to pay for the payroll taxes. Then, your taxable take home pay under the federal income tax would equal what it would have been if the SALT deduction was left in place.

However, this proposal would be incredibly difficult to implement, likely resulting in a major increase in government bureaucracy and making a complex tax system that much worse. In order for the new payroll tax rates to even be similar to current income tax rates, a new and untested graduated payroll tax would have to be implemented and administered. New York’s tax burden is currently ranked as the third highest in the country.

New Jersey: New Jersey Democrats are considering a similar approach to California, taking the charitable fund idea and expanding the proposal beyond the state level to cities and other localities. Not surprisingly, the same issue of IRS rule violations will likely block this shell game from taking effect.

New Jersey lawmakers are proposing this extreme measure in order to continue to cover up their exorbitant property tax rate, which at 2.19% is close to double the national average. In fact, the average New Jersey homeowner pays a whopping $8,353 just in property taxes annually.

Instead of proposing insane shell games to continue to mask the cost of their exorbitant state taxes, Democrats in California, New York and New Jersey would do well to focus on the root cause of the problem: their own high tax burdens on high income earners. However, this wish is just as likely to succeed as their ridiculous plans to protect their wealthy constituents from their own misguided policies.

Photo Credit: Deanne Fitzmaurice

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