Lawyers and accountants have long been paid millions to sift through the federal tax code searching for exemptions and loopholes. When they couldn’t find any, wealthy individuals paid lobbyists to persuade politicians to create new ones.
Republicans in Congress made such accounting machinations seem quaint last month, rushing through an income tax reform bill that overwhelmingly benefits the wealthy and large corporations. We agree our tax system needed reform, but it was outrageous that Republicans – and Republicans alone – passed a bill that handed $1 trillion in tax cuts to the very wealthy and helped pay for them by penalizing people living in states like California.
Now our state’s leaders are using some old-fashioned accounting gimmicks of their own to protect their constituents. Good. We’ll need them.
State Senate President Pro Tem Kevin de León introduced the Protect California Taxpayers Act this week to create a work-around for one particularly onerous provision in the new tax law – the $10,000 cap on deductions for state and local income and property taxes. Those deductions saved California taxpayers $100 billion annually, helping millions of middle-class families make ends meet.
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The legislation, worked out with the help of UCLA law professor Kirk Stark, would let Californians claim those taxes as charitable “donations” to the state. That would make state income and property taxes fully deductible for those who itemize. The money would go into a special fund run by the Treasurer’s Office and the state would credit taxpayers for their “donations.”
It’s not a new idea. California and 17 other states already use an obscure IRS rule to help fund education through deductible “contributions.”
New York Gov. Andrew Cuomo liked the idea well enough to mention it in his state of the state address this week as he vowed to fight the GOP’s “assault on New York.” He called the GOP’s actions “economic civil war” and said his state will sue to keep Trump and Congressional Republicans from “robbing” blue states to subsidize red states.
We feel Cuomo’s anger. California and New York are already so-called donor states, with residents paying more in federal taxes than we get back. We should not have to hand over even more money so that Uncle Sam can forward it to wealthy folks in Kentucky, Mississippi and South Carolina.
Perhaps that’s why so many taxpayers decided to prepay 2018 property taxes in 2017, hoping to save a few hundred dollars 16 months from now. Others are suggesting states should convert income taxes to payroll taxes paid by employers. But a bill that lowers paychecks would be unlikely to pass at the ballot box. Some feel there should be more targeted taxes on services used by wealthier people, since they’re the ones benefiting.
But whatever California, New York and others come up with to protect their taxpayers, Republicans in Congress will work against it. Unfortunately, that includes many California Republicans.
Only two California Republicans had the guts to buck their party and vote against the final version of HR 1. Those representing the Valley and foothills – Jeff Denham, Tom McClintock, Devin Nunes and David Valadao – all voted yes, constituents be damned.
Gov. Jerry Brown releases his budget next week and addresses the state on Jan. 25. We hope he’ll have additional ideas. We also hope he calls out those in Congress who decided to penalize California just for being blue.