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I.R.S. Warns States Not to Circumvent State and Local Tax Cap

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Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#51

Post by closeparen »

dahdum wrote: post #29
JumpCrisscross wrote: post #20

Earlier quoted context omitted.

> I would be surprised to see a judge take kindly to that type of nonsense We're a nation of laws. Not taking kindly to a case isn't justification for a ruling. The tax law was haphazardly drafted and written specifically to increase wealth transfers from surplus states ( e.g. Delaware, Minnesota and New Jersey) to deficit states ( e.g. New Mexico, Mississippi and West Virginia) [1]. I see valid arguments for both si…

The SALT deduction was a handout to the most affluent and a subsidy to the wealthiest states. It allowed them to increase their state and local taxes at the expense of federal revenue, spreading that burden across the country. The tax plan certainly had flaws, but capping SALT was egalitarian IMO.

What does it mean for a state to be affluent? The goods and services governments purchase are presumably purchased in their local markets. It’s not as if a $60k New York police officer or bureaucrat stops more crime, pushes more paper, or lives better than his $30k counterpart in Alabama. It’s not as if a public housing project that builds 10 efficiency studios at $500k each represents a higher level of public service than one that provisions 10 $50k mobile homes. I agree that certain areas have higher and lower concentrations of genuine wealth but a progressive income tax curve already takes care of that. SALT was more like a crude approximation of a cost of living adjustment.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#52

Post by JumpCrisscross »

throwaway76543 wrote: post #50
JumpCrisscross wrote: post #23

Earlier quoted context omitted.

That's an oversimplification. "A quid pro quo contribution is a payment made to a charity by a donor partly as a contribution and partly for goods or services provided to the donor by the charity" [1]. In this case, the charity isn't providing the quid pro quo , the local government is. States are already allowed to let one deduct charitable contributions from state taxes however they like. And visiting a park one do…

All of this has been tried before with folks trying to funnel profits into charities. The IRS is going to say "no, we're considering these entities to be a single entity" and they may even say "and furthermore it's criminal tax evasion and you're all going to prison." This is a news article about a notice they've just issued indicating as much. The law is not a computer program. Being clever about definitions does no…

> The IRS is going to say

The IRS is powerful. But so are the states. If you think this is a simple case, you're mis-understanding it. Fully expect this to go to the Supreme Court.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#53

Post by joejerryronnie »

adventured wrote: post #45

It's wild to watch the Democrats argue in favor of preserving tax advantages for the top income tiers. Ie arguing for regressive tax policies and for preventing taxes from going up to where they should be on high income persons. And not just argue, but invent ridiculous schemes to try to maintain that special tax treatment for well-off people. 88% of the SALT deductions were going to households earning over $100,000.…

The SALT cap clearly impacts lower-middle class and middle class home owning residents of California and New York (in addition to higher income earners). This had zero to do with tax reform and was 100% punishment for states that did not vote for Trump.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#54

Post by JumpCrisscross »

lotsofpulp wrote: post #46
JumpCrisscross wrote: post #40

Earlier quoted context omitted.

> the money wouldn't be going to the government Hence my argument for the lack of a quid pro quo . The charity gets the quid ; someone else provides the pro quo . How states and municipalities count their tax obligations could be argued to be local issues, from a Tenth Amendment perspective. (We just had a landmark anti-commandeering case get decided on by SCOTUS.) Here's a clearer quid pro quo : churches.

How is the charity and the government not the same entity?

> How is the charity and the government not the same entity?

Charities and municipal governments are legal fictions of the states. I do not know the specifics of how these charities are set up. I presume they are ownerless non-profits. (If not, the New Jersey legislature could simply create such an entity type.) Determining common control with municipalities will be tricky.

That they are creatures of the states, and not the federal government, is what will make the lawsuits interesting. The most realistic pathway for the IRS would be to argue these charities do not qualify as such under federal tax law. How they will do this, within the confines of the 10th Amendment and a haphazardly-written tax code, without hitting other charities, will be delicate and complicated.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#55

Post by dahdum »

einarvollset wrote: post #44
dahdum wrote: post #29

Earlier quoted context omitted.

The SALT deduction was a handout to the most affluent and a subsidy to the wealthiest states. It allowed them to increase their state and local taxes at the expense of federal revenue, spreading that burden across the country. The tax plan certainly had flaws, but capping SALT was egalitarian IMO.

You can certainly convincingly argue that, but to retain a coherent argument you also now need to tell me how it’s egalitarian that all the states hit by this overwhelmingly contribute more to federal tax coffers per capita (and hence are subsidizing) the states where the $10k cap will have no impact.

Same reasoning actually, they contribute more because they have more. Federal income tax is per person and progressive, so states with wealthier residents will always pay more.

Even a flat tax wouldn't change that.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#56

Post by chriskanan »

Why are property taxes in NY state so high? I moved to upstate NY a few years ago for work, and while houses are cheaper than in CA, property taxes are far higher ($20K in property taxes per year for a $500K home). Some people I know are paying even $30-40K in property taxes per year. I was excited about the cheaper home prices in this area, but now that I am finally thinking about buying a home, it is fairly difficult if one includes the property taxes (without taking into consideration deduction schemes).

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#57

Post by dahdum »

noobermin wrote: post #39
dahdum wrote: post #29

Earlier quoted context omitted.

The SALT deduction was a handout to the most affluent and a subsidy to the wealthiest states. It allowed them to increase their state and local taxes at the expense of federal revenue, spreading that burden across the country. The tax plan certainly had flaws, but capping SALT was egalitarian IMO.

Spreading that burden to states which have a negative contribution to the fed? The states that utilized SALT on net contribute more in tax to the fed gov't than they take in spending.

When California raised their income tax several years ago, they reduced federal revenue because of SALT. For example, $1 billion in new state taxes would reduce federal revenue by ~$300 million. That shortfall must then be covered by the whole country.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#58

Post by JumpCrisscross »

dahdum wrote: post #57
noobermin wrote: post #39

Earlier quoted context omitted.

Spreading that burden to states which have a negative contribution to the fed? The states that utilized SALT on net contribute more in tax to the fed gov't than they take in spending.

When California raised their income tax several years ago, they reduced federal revenue because of SALT. For example, $1 billion in new state taxes would reduce federal revenue by ~$300 million. That shortfall must then be covered by the whole country.

> That shortfall must then be covered by the whole country.

When Mississippi cuts benefits for its residents, my federal tax dollars pay for their disability insurance. When West Virginia fails to regulate its industry, educate its residents or build infrastructure, my tax dollars subsidise their choices. TL; DR It is odd to talk about subsidy when they generally flow from those hit by the SALT cap to those benefiting from this bill.

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#59

Post by allenz »

drak0n1c wrote: post #10
larkeith wrote: post #8

"...The $10,000 cap was imposed as a way to offset some of the cost of other individual and business tax cuts. The Treasury Department and the I.R.S. are worried that the workarounds could further balloon the cost of the tax cuts, which are projected to add more than $1 trillion to the national debt over a decade." Describing this as likely to 'further balloon' the cost of tax cuts seems inaccurate and misleading - t…

Additionally, the CBO recently recalculated the long-term cost of the tax cuts to be $440 billion due to the changes in economic growth after the tax cuts came into effect. The NYT article is ignoring the more recent $440b April estimate in favor of citing the trillion dollar December estimate. https://www.cbo.gov/publication/53651 https://www.investors.com/politics/editorials/trump-tax-cuts...

To arrive at $440 billion, IBD argues that the tax plan cut tax revenue by $1.69 trillion but caused GDP growth producing $1.1 trillion in new revenue. However, the $1.69 trillion figure already factored in GDP growth, so they double counted.[1] I'm surprised that they made such a basic mistake. You should read less IBD and more NYT.

[1] CBO Appendix A, page 93: "Legislative changes... led CBO to increase its projection of the cumulative deficit over the 2018–2027 period by $2.7 trillion. Those changes were offset in part by the effects of revisions to CBO’s economic forecast, which led to $1.0 trillion in reductions to projected deficits, almost entirely because of increased projections of revenues."

Re: I.R.S. Warns States Not to Circumvent State and Local Tax Cap

#60

Post by [deleted] »

bcheung wrote: post #47
Spooky23 wrote: post #12

Earlier quoted context omitted.

The tax reform hit many places hard. You can only deduct the first $10,000. Every suburb of NYC has an average property tax of over $10k, plus most people pay state income tax. These people are doubly impacted by the higher standard deduction, which makes it difficult for all but the wealthy to deduct.

Not sure I follow. The wealthier have higher incomes and higher property taxes due to buying more expensive homes. The $10,000 cap hits them even harder.

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