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Will States find a way to get around the SALT deduction?

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  • Will States find a way to get around the SALT deduction?

    Given that states like NY, NJ, CA and a few others are taking a hit with the loss of a SALT deduction, there is apparently some talk about finding ways to work around that.  For instance, given that the majority of property tax is made up of school tax, they are suggesting to call it a charitable contribution to the state, which would then be deductible.

    https://www.bloomberg.com/news/articles/2017-12-18/finance-gurus-devise-funky-workarounds-to-loss-of-salt-deduction

    Cute ideas, but I don't think this would pass.  What do you think?

  • #2
    Maybe.

    Comment


    • #3
      It'll never work. Here in Arizona, we have something similar called the Charitable Tax Credit, where taxpayers can give up to $200 per year to an approved charity. The state refunds the contribution 100%, and it is also federally tax deductible. Win/win for the taxpayer, so why wouldn't everyone in Arizona take advantage of this program? Well, only less than 20% do, and that's for only $200. Imagine if the optional contribution was several thousand dollars? How many would participate? The state would lose 10s if not 100s of millions of dollars in revenue from people choosing not to participate, even with a full refund from the state.

      Comment


      • #4
        Nifty thing about charitable giving: it’s optional.
        I can’t see school property taxes becoming optional for the highest earners and for those with the priciest real estate.

        Comment


        • #5
          I think idea #1, the 100% credit for charitable giving to the state would work. True it would only help the itemizers, mostly the high income earners, so I can’t see MA doing it, but if it could be packaged as an anti Trump, anti GOP reform, just maybe....

          But I have to admit, even though loss of SALT deduction hurts me, I do agree philosophically with getting rid of it. Why should low tax states be forced to subsidize high tax states? They shouldn’t.

          Maybe the lesson MA should take from this is just to drastically lower state income taxes.

          Comment


          • #6
            States will only lose out to the extent that they lose taxpayers who can't be replaced by other taxpayers at similar incomes. Individuals in high tax states may lose out, but this assumes the deduction losses offset the tax/credit gains elsewhere. I wouldn't anticipate a heck of a lot of movement and therefore wouldn't expect a lot of revenue losses for blue states.

            Comment


            • #7




              But I have to admit, even though loss of SALT deduction hurts me, I do agree philosophically with getting rid of it. Why should low tax states be forced to subsidize high tax states? They shouldn’t.

              Maybe the lesson MA should take from this is just to drastically lower state income taxes.
              Click to expand...


              Philosophically this idea that high tax states are being subsidized by low tax states is totally and completely false.  It is a lie propagated by the right wing media.  The truth is actually completely opposite and it can be easily proven with checking facts.  High cost of living places like CA, NY are also highly populated places.  They pay an enormous share of federal taxes even with their current state tax deduction simply because of the sheer number of people living there.  And they get far less in return in federal spending compared to the low cost states.  Many of the low cost of living states such as montana, idaho, wyoming, kentucky etc. are very very low populations in comparison and pay a much smaller amount of the total federal tax burden.  In addition, many of these states (kentucky being the worst) rely very heavily on federal aid for it's citizens (states that rely on federal aid)

              So, even under the current tax law (which is gone in 1 week), the truth is that high tax states such as CA and NY are actually subsidizing low tax states in a very big way and will be even more so under the new law.

              Fact Check Article:

              https://www.washingtonpost.com/business/ap-fact-check-blue-high-tax-states-fund-red-low-tax-states/2017/12/09/d8c6b960-dce9-11e7-a241-0848315642d0_story.html?utm_term=.0a3b45551692

              Comment


              • #8
                I think the payroll tax is likely the first state tax maneuver because it addresses the unfairness of both the new state tax cap as well as disparity between W2 and 1099 income now.

                I think charitable deductions to state entities with 100% deductibility to both state and federal will also happen, my guess is starting with school funding

                Comment


                • #9
                  I think this interstate transfer idea is very interesting and a great thing to discuss. However, if we keep couching things in blue/right/etc...we will not be able to talk about such interesting things.

                  And in reality they arent necessarily political. There are more republicans in california than the populations of the smaller 30 states. Its not a red/blue/etc...its mostly an economic center vs. not. The states also flip their colors depending on whatever happens in various years, and some 'red' states have highish overall tax burdens.

                  Its much more interesting from a structural perspective, and yes an influence/capita perspective centrally. The whole pitting each other against ourselves is ridiculous.

                  You can find examples of 'blue' states with low income tax and 'red' ones with high ones and vice versa and the same for property, sales, etc...they get the tax somewhere, many times its just not as obvious as an income tax.

                  Comment


                  • #10
                    since i send my kids to private school, if i didn't have to pay taxes towards schools i would be in favor of this.  most people only need local school for fifteen or twenty years (depending on how many kids).  some less.  don't see how this is going to work out for the state but some states may be willing to try.

                    Comment


                    • #11







                      But I have to admit, even though loss of SALT deduction hurts me, I do agree philosophically with getting rid of it. Why should low tax states be forced to subsidize high tax states? They shouldn’t.

                      Maybe the lesson MA should take from this is just to drastically lower state income taxes.
                      Click to expand…


                      Philosophically this idea that high tax states are being subsidized by low tax states is totally and completely false.  It is a lie propagated by the right wing media.  The truth is actually completely opposite and it can be easily proven with checking facts.  High cost of living places like CA, NY are also highly populated places.  They pay an enormous share of federal taxes even with their current state tax deduction simply because of the sheer number of people living there.  And they get far less in return in federal spending compared to the low cost states.  Many of the low cost of living states such as montana, idaho, wyoming, kentucky etc. are very very low populations in comparison and pay a much smaller amount of the total federal tax burden.  In addition, many of these states (kentucky being the worst) rely very heavily on federal aid for it’s citizens (states that rely on federal aid)

                      So, even under the current tax law (which is gone in 1 week), the truth is that high tax states such as CA and NY are actually subsidizing low tax states in a very big way and will be even more so under the new law.

                      Fact Check Article:

                      https://www.washingtonpost.com/business/ap-fact-check-blue-high-tax-states-fund-red-low-tax-states/2017/12/09/d8c6b960-dce9-11e7-a241-0848315642d0_story.html?utm_term=.0a3b45551692
                      Click to expand...


                      i could never figure out whether these claims are true or false.  i think everyone who calculates these things and publishes them is likely subject to some external pressures to support their workplace political atmosphere (on both sides) or at a minimum has their own biases.  just like everyone who reads these things.

                      i think planned expenditures are probably correct but i don't know how to factor in the $40 billion for fire relief, etc.

                      comments like "in a big way" turn me off written by journalists.  what does that even mean?

                      it's hard to know imo, whether federal per capita spending is supposed to be the same for everyone.  i think we want some minimum level of law enforcement and safety and defense.  it would be plausible to me that more is given to states that are border states for this purpose.   do we then balance out other areas to make overall spend equal for example?

                       

                       

                       

                      Comment


                      • #12










                        But I have to admit, even though loss of SALT deduction hurts me, I do agree philosophically with getting rid of it. Why should low tax states be forced to subsidize high tax states? They shouldn’t.

                        Maybe the lesson MA should take from this is just to drastically lower state income taxes.
                        Click to expand…


                        Philosophically this idea that high tax states are being subsidized by low tax states is totally and completely false.  It is a lie propagated by the right wing media.  The truth is actually completely opposite and it can be easily proven with checking facts.  High cost of living places like CA, NY are also highly populated places.  They pay an enormous share of federal taxes even with their current state tax deduction simply because of the sheer number of people living there.  And they get far less in return in federal spending compared to the low cost states.  Many of the low cost of living states such as montana, idaho, wyoming, kentucky etc. are very very low populations in comparison and pay a much smaller amount of the total federal tax burden.  In addition, many of these states (kentucky being the worst) rely very heavily on federal aid for it’s citizens (states that rely on federal aid)

                        So, even under the current tax law (which is gone in 1 week), the truth is that high tax states such as CA and NY are actually subsidizing low tax states in a very big way and will be even more so under the new law.

                        Fact Check Article:

                        https://www.washingtonpost.com/business/ap-fact-check-blue-high-tax-states-fund-red-low-tax-states/2017/12/09/d8c6b960-dce9-11e7-a241-0848315642d0_story.html?utm_term=.0a3b45551692
                        Click to expand…


                        i could never figure out whether these claims are true or false.  i think everyone who calculates these things and publishes them is likely subject to some external pressures to support their workplace political atmosphere (on both sides) or at a minimum has their own biases.  just like everyone who reads these things.

                        i think planned expenditures are probably correct but i don’t know how to factor in the $40 billion for fire relief, etc.

                        comments like “in a big way” turn me off written by journalists.  what does that even mean?

                        it’s hard to know imo, whether federal per capita spending is supposed to be the same for everyone.  i think we want some minimum level of law enforcement and safety and defense.  it would be plausible to me that more is given to states that are border states for this purpose.   do we then balance out other areas to make overall spend equal for example?

                         

                         

                         
                        Click to expand...


                        I haven't delved into this issue deeply admittedly but it does seem that the calculation should not be that difficult. It should just be average federal expenditure per person divided by average federal income per person.

                        But you raise a good point that it's not written in stone that the fed gov't should spend an exactly equal amount of money on each person.

                        Then you get into all kinds of weird calculations where you think of a state like LA which is a critical entry point for refined oil that has some geographic risk associated with it (hurricanes) and compare that to a state like NH which, while beautiful and full of wonderful people, is neither as economically critical nor as in danger from natural disasters.

                        As Zaphod said as well, not sure that people should be penalized or rewarded for living in commercial centers.

                        Comment


                        • #13
                          I am not sure what the answer is to the points you bring up.  I'm just tired of hearing people say that the red states are subsidizing the blue as a reason for passing certain legislation.  It's intentionally misleading people, which now a days is all too common practice.  I just want everyone to be well informed and as truthful as possible so we can all make wise decisions as voters.

                          Comment


                          • #14
                            Interesting.  The State always allows one to write a check to them.  It is technically a nonprofit and some type of loophole probably can be created to this.

                            I also agree that the Fed shouldn't subsidize what States choose to do on the State side so though the SALT issue directly hurts quite a bit, we choose to be in Cali; so it's a Cali self tax problem --- just like if we choose to increase local sales tax for roads and property taxes for school bonds.  State and Fed shouldn't carry that additional burden.    On the same strain, never understood the reasoning behind the Medicaid subsidy  split.

                            Fed needs dollars and it's natural for some States to get more dollars like WY and MT.  Interstate highways are costly to build and maintain.   We want to cross country travel?  Gotta pay for it.   Military Bases?  Same.  Take those large chunks of Fed spending and the in/out flows probably are a bit closer.  Yeah, metro areas (hence coastal, hence Blue) will in general overpay compared to rural areas--really a matter of scaling costs efficiency.

                            This would definitely be worthwhile to pursue.  I don't agree with subsidizing private education though via vouchers and this route.  Public schools need every penny that they get to teach proper basics and good productive citizens.

                            Comment


                            • #15













                              But I have to admit, even though loss of SALT deduction hurts me, I do agree philosophically with getting rid of it. Why should low tax states be forced to subsidize high tax states? They shouldn’t.

                              Maybe the lesson MA should take from this is just to drastically lower state income taxes.
                              Click to expand…


                              Philosophically this idea that high tax states are being subsidized by low tax states is totally and completely false.  It is a lie propagated by the right wing media.  The truth is actually completely opposite and it can be easily proven with checking facts.  High cost of living places like CA, NY are also highly populated places.  They pay an enormous share of federal taxes even with their current state tax deduction simply because of the sheer number of people living there.  And they get far less in return in federal spending compared to the low cost states.  Many of the low cost of living states such as montana, idaho, wyoming, kentucky etc. are very very low populations in comparison and pay a much smaller amount of the total federal tax burden.  In addition, many of these states (kentucky being the worst) rely very heavily on federal aid for it’s citizens (states that rely on federal aid)

                              So, even under the current tax law (which is gone in 1 week), the truth is that high tax states such as CA and NY are actually subsidizing low tax states in a very big way and will be even more so under the new law.

                              Fact Check Article:

                              https://www.washingtonpost.com/business/ap-fact-check-blue-high-tax-states-fund-red-low-tax-states/2017/12/09/d8c6b960-dce9-11e7-a241-0848315642d0_story.html?utm_term=.0a3b45551692
                              Click to expand…


                              i could never figure out whether these claims are true or false.  i think everyone who calculates these things and publishes them is likely subject to some external pressures to support their workplace political atmosphere (on both sides) or at a minimum has their own biases.  just like everyone who reads these things.

                              i think planned expenditures are probably correct but i don’t know how to factor in the $40 billion for fire relief, etc.

                              comments like “in a big way” turn me off written by journalists.  what does that even mean?

                              it’s hard to know imo, whether federal per capita spending is supposed to be the same for everyone.  i think we want some minimum level of law enforcement and safety and defense.  it would be plausible to me that more is given to states that are border states for this purpose.   do we then balance out other areas to make overall spend equal for example?

                               

                               

                               
                              Click to expand…


                              I haven’t delved into this issue deeply admittedly but it does seem that the calculation should not be that difficult. It should just be average federal expenditure per person divided by average federal income per person.

                              But you raise a good point that it’s not written in stone that the fed gov’t should spend an exactly equal amount of money on each person.

                              Then you get into all kinds of weird calculations where you think of a state like LA which is a critical entry point for refined oil that has some geographic risk associated with it (hurricanes) and compare that to a state like NH which, while beautiful and full of wonderful people, is neither as economically critical nor as in danger from natural disasters.

                              As Zaphod said as well, not sure that people should be penalized or rewarded for living in commercial centers.
                              Click to expand...


                              it's like that healthcare causes bankruptcy study that got all the headlines about twelve years ago?  50% bankruptcies related to medical debt.

                              they included spending on alcohol and gambling losses as medical costs, and failed to emphasize the average hospital bill that sent people plummeting into bankruptcy was like $1,000 or something.  the costs got put into one column or the other and ultimately i think many people were not in agreement that the number attributable to reasonable health care costs was 50%.

                              Comment

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