Democratic States Plan to Avoid GOP Taxes

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With the deduction of State and Local Taxes all but removed from tax law, many Democratic high tax states are searching for loopholes in order to relieve the burden on their taxpayers. The GOP tax plan may help some individuals, but by placing a cap on state and local tax (SALT) deductions, those in democratic leaning states may see their taxes raised. In California, 6.1 million individuals used the SALT deductions with the average amount landing at 18,438. New York and Connecticut were the only states with higher average deductions. The ten thousand dollar cap would effectively raise taxes on regular people in blue states to pay for the tax breaks being given to corporations. New York Governor Andrew Cuomo has said of the tax bill, “It is crass. It is ugly. It is divisive. It is partisan legislating. It is an economic civil war. And make no mistake, they are aiming to hurt us. We must take dramatic action to save ourselves and preserve our state’s economy.”

While elected officials from city counselors to governors worry about their constituents’ well being, some Republicans are gleeful about harming Democrats financially. One of President Trump’s economic advisors even referred to the tax plan as “death to democrats.” In a world where taxes are being weaponized against political opponents, legislators in California, New York and New Jersey have found some creative ways to help individuals “evade taxes.”

A notable solution suggested by Senate Pro Tem of California, Kevin De Leon, is to implement a state charitable donation fund. If individuals donated money to the state they would receive a deduction for the same amount against their state income taxes. Then the charitable donation would also be considered a write-off for federal taxation purposes. This may seem like an unconventional, out-of-the-box, and some may even say illegal approach, but there is actually some precedent. In some states, when parents donate to their child’s private school, this counts as a state tax deduction and it is seen as such for federal tax purposes. Further, according to an IRS ruling in 2011 such a contribution to a state general fund is considered a charitable donation. If this proposal goes through, the state maintains the same amount of income while ensuring its citizens do not face increase in their taxes.

On the other coast, New York is proposing changing from a state income tax system to a state payroll tax system. For this to work individuals would see their pay cut but their take-home income would remain the same. Companies would pay the payroll taxes and would be allowed to deduct them under the GOP tax law. This solution simply changes who pays the federally deductible taxes, it would not change any party’s take-home money. Individuals would not see their taxes raised, companies would not pay more, and the state receives the same revenue. The only loser would be the federal government, and they invited state opposition by deciding to cut taxes without considering how it would affect Americans in all 50 states.

Another proposal is to sue the federal government since it violates principles of states rights to unfairly target specific states. Some legal scholars have also said that the 16th amendment, which authorizes the federal income tax, can be interpreted in such a way that income is defined as income remaining after state and local taxes. This is the solution that is 9most likely to come to fruition. Last Friday, it was announced by the governors of New York, New Jersey, and Connecticut that they will jointly sue the federal government over the GOP tax law. Gov. Phil Murphy of New Jersey, called the tax plan “a clear and politically motivated punishment of blue states — like New Jersey and our neighbors — who already pay far more to the federal government than we receive.” The lawsuit is expected to be filed within two weeks, but it is unclear where the parties will file the lawsuit.

Some see these proposals protect the property rights of state citizens, while others see them as blatant undermining of the federal government and state sanctioning of tax evasion. The fact of the matter is that politicians want to help their constituents and one of the ways to do that is to save them money. Many look at the Democratic states and simply expect them to lower taxes, but to do that would be to tell them to slash school budgets and social services which would significantly harm individuals far more than higher taxes. Democratic states had the rug pulled out from under them and it only adds insult to injury that it is mostly the blue states that will be harmed. If Alabama and Mississippi were to face higher taxes under this proposal, maybe Republican legislators would think twice before its passage. It is immoral and unjust to harm citizens in favor of corporations. Republicans should aim to lower taxes for all rather than prioritizing those with “.inc” at the end.

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