California Hatches Plan To Dodge Tax Reform to Allow Full SALT Deductions from Federal Taxes

[SirLinksALot]

SOURCE: HOTAIR

URL: https://hotair.com/archives/2018/01/08/californias-plan-dodge-tax-reform-shell-game/

by Jazz Shaw


When the Democrats were railing against the tax cut package which was passed before Christmas, one of their major rallying cries was to say that Trump and the Republicans were “punishing blue states” by capping SALT deductions (the amount of state and local taxes you pay which may then be deducted from your federal taxes) at $10K per year. Hardest “hit” were New York and California, with their respective governors vowing to #RESIST Trump and find a way to spare their people. While this would obviously be a silly idea in progressive circles, one response might have been to ask why they don’t stop taxing their residents at such insanely high levels. Perish the thought.

True to their word, California got to work on a plan which would allow residents to avoid this pitfall and still be able to take the full SALT deduction next year. How could they do that? It’s a rather complex shell game cooked up in the state senate. If approved, it would establish a “California Excellence Fund” where residents could make a “contribution” equal to the amount of state tax they owe over the cap. In exchange, the state would give them an offsetting tax credit of an equal amount which they could then deduct on their federal taxes under the exception provided for “charitable contributions.”

But there’s nothing “charitable” about it. The so-called Excellence Fund is nothing more than a holding company inside the state treasury specifically designed to create a tax dodge. Even the LA Times editorial board looked at this scheme and advised against such a corrupt practice. (Emphasis added)

The Internal Revenue Service has blessed similar arrangements that California has used to raise money for college scholarships, and that several states use to preserve land from development or generate money for private school vouchers. But it’s one thing to offer a tax break to try to support a public project or service; it’s another to do it solely to cut Californians’ federal tax bills. Passing the De León bill would be the state’s version of setting up a shell company in the Cayman Islands in order to shelter Californians’ income.

We should also be asking how many people this SALT cap provision is really affecting. In California, the state legislature is making a point of saying that the “average” SALT deduction by Californians is nearly $18,500. But that’s only because the top earners in the Golden State are so massively wealthy that they tip the scales quite a bit. It’s worth noting that you need to earn more than $140K in California in order to owe $10K in state taxes. In New York (which we’ll get to in a moment) you need to earn $170K before you break the $10K state tax barrier. And you still get to deduct all of the state taxes up to that point, so you’re only missing out on deductions for taxes paid on income above those levels.

(EXCERPT) CLICK ABOVE LINK FOR THE REST....

[IsailedawayfromFR]

California is not the one who decides whether a state tax is deductible or not.  It is the feds and the IRS.

Watch some bloody court battles here.

[Suppressed]

Problem is, the "average" American isn't mathematically literate enough to realize that there are different aberages, such as a median, mode, geometric mean, arithmetic mean, harmonic mean, etc.

[truth_seeker]

Problem is, the "average" American isn't mathematically literate enough to realize that there are different aberages, such as a median, mode, geometric mean, arithmetic mean, harmonic mean, etc.

I'm only "aberage" but even this simpleton knows folks don't much care about harmonic means, when it comes to their weekly, biweekly, monthly, quarterly and annual federal taxes.

[SirLinksALot]

California is not the one who decides whether a state tax is deductible or not.  It is the feds and the IRS.

Watch some bloody court battles here.

If California calls it a charity contribution and the IRS disagrees, who wins?

[WingNot]

If California calls it a charity contribution and the IRS disagrees, who wins?

Lets call Lois Lerner and ask.

[Applewood]

Problem is, the "average" American isn't mathematically literate enough to realize that there are different aberages, such as a median, mode, geometric mean, arithmetic mean, harmonic mean, etc.

I must be really below average because I don't understand what any of those terms mean. 

[edpc]

If approved, it would establish a “California Excellence Fund” where residents could make a “contribution” equal to the amount of state tax they owe over the cap. In exchange, the state would give them an offsetting tax credit of an equal amount which they could then deduct on their federal taxes under the exception provided for “charitable contributions.”

The only people that can afford this are the wealthy.

California passes tax breaks for the rich!!!

[Fishrrman]

"But there’s nothing “charitable” about it. The so-called Excellence Fund is nothing more than a holding company inside the state treasury specifically designed to create a tax dodge. Even the LA Times editorial board looked at this scheme and advised against such a corrupt practice."

Prediction:
If California tries this, the IRS may take them to court (I would hope that they do so).
It will end up before the U.S. Supreme Court, which will disallow the deduction.
After which... there's going to be A LOT of unhappy California taxpayers...

[IsailedawayfromFR]

If California calls it a charity contribution and the IRS disagrees, who wins?

The IRS will invariably prevail. It will certainly be one to claim the definition of what constitutes state income tax that the new tax law was based upon.

[IsailedawayfromFR]

"But there’s nothing “charitable” about it. The so-called Excellence Fund is nothing more than a holding company inside the state treasury specifically designed to create a tax dodge. Even the LA Times editorial board looked at this scheme and advised against such a corrupt practice."

Prediction:
If California tries this, the IRS may take them to court (I would hope that they do so).
It will end up before the U.S. Supreme Court, which will disallow the deduction.
After which... there's going to be A LOT of unhappy California taxpayers...

The IRS will not have to bring it to court.

The IRS will simply create the rules that deny the application of deductibility.

The state will have to bring it to court.

[Snarknado]

Maybe CA could use this fund to clean up the SALTon Sea environmental disaster...