For years, corporations have relied on their accountants to sift through the federal tax code, and find exemptions and loopholes to exploit for financial gain. And for just as many years, Democrats have claimed to be irked by the practice.
So it’s saying something that, faced with financial fallout from the Republican tax overhaul, Democrats from California and other high-cost, high-tax states are now eager to enshrine the same sort of accounting tricks into law.
Senate President Pro Tem Kevin de León’s solution is the Protect California Taxpayers Act, which he hopes will get around one particularly thorny provision in the new law, which caps deductions for state and local income and property taxes at $10,000.
Those deductions, when they were unlimited, saved California taxpayers more than $100 billion, helping millions of hardworking, middle-class families make ends meet.
The legislation, which de León has been working on with Kirk Stark, a law professor from UCLA, would let Californians who itemize their deductions pay their state income taxes as if they are fully deductible charitable “donations” to the state. The money, which would eventually end up in the state’s budget, would first go into a special fund run by the Treasurer’s Office and the state would credit taxpayers for their payments.
It’s a nice idea – one with a precedent, too, as California and 17 other states already use an obscure Internal Revenue Service rule to help fund education.
Ultimately, the bill comes across as a short-term solution that’s likely to get slammed by the Trump administration, prompting yet another lawsuit from California. Not surprisingly, there are skeptics in the Capitol even as de León has been making the rounds on cable TV networks touting it.
We understand his desire to do something. California, already a donor state, should not have to hand over more money to Uncle Sam, especially knowing it will mostly go toward lining the pockets of the rich. But California needs a real, sustainable solution to offset some of the fiscal damage of this monstrosity of a tax law.
Last week, thousands of people across the country stood in line to prepay their property taxes, hoping against hope to save some money before the tax overhaul kicked in on Jan. 1. They’ll have to wait a few months to see if it worked.
Meanwhile, policymakers are weighing whether to replace income taxes with payroll taxes paid by employers or targeted taxes on services used by wealthier people. This would be more of a long-term solution. But voters would have to make that change, which would be tough.
New York is considering a similar strategy. But on Wednesday, Gov. Andrew Cuomo settled for announcing vague plans to sue the federal government. In his State of the State address, Cuomo argued the tax law is unfairly “robbing” blue states to subsidize red states.
Gov. Jerry Brown will release his budget next week. He ought to have proposals of his own to offer. We may not be in desperate times. But certainly these are unusual times and they may require unusual measures.