Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

mobile.nytimes.com

Post reply on HN
Print view View original

61–70 of 73 posts

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

#61

Post by dahdum »

JumpCrisscross wrote: post #58
dahdum wrote: post #57

Earlier quoted context omitted.

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 benefitin…

I don't understand what you're arguing for here, why should affluent CA/NY/CT tax payers receive a tax break paid for by everyone else? How would you argue for the SALT deduction if it never existed in the first place?

I also don't see why it's a problem that some states are donors, they have more to give. Federal spending should be progressive, otherwise it simply drives more inequality.

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

#62

Post by JumpCrisscross »

dahdum wrote: post #61
JumpCrisscross wrote: post #58

Earlier quoted context omitted.

> 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 benefitin…

I don't understand what you're arguing for here, why should affluent CA/NY/CT tax payers receive a tax break paid for by everyone else? How would you argue for the SALT deduction if it never existed in the first place? I also don't see why it's a problem that some states are donors, they have more to give. Federal spending should be progressive, otherwise it simply drives more inequality.

I won't argue for SALT per se. I do have an issue with the political logic the Congress used in singling out Democratic states. Furthermore, the bill as a whole was regressive. Arguing for the progressive lifting of a specific subsidy, within the general context of a regressive bill that increases interstate subsidies, is hypocrisy. So is requiring food stamp recipients to undergo a battery of expensive tests while their analogs at governmental level get increased handouts.

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

#63

Post by dahdum »

JumpCrisscross wrote: post #62
dahdum wrote: post #61

Earlier quoted context omitted.

I don't understand what you're arguing for here, why should affluent CA/NY/CT tax payers receive a tax break paid for by everyone else? How would you argue for the SALT deduction if it never existed in the first place? I also don't see why it's a problem that some states are donors, they have more to give. Federal spending should be progressive, otherwise it simply drives more inequality.

I won't argue for SALT per se . I do have an issue with the political logic the Congress used in singling out Democratic states. Furthermore, the bill as a whole was regressive. Arguing for the progressive lifting of a specific subsidy, within the general context of a regressive bill that increases interstate subsidies, is hypocrisy. So is requiring food stamp recipients to undergo a battery of expensive tests while…

I don't think I'm being hypocritical for defending a good policy in a bad bill.

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

#64

Post by candiodari »

ajross wrote: post #26
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…

No, from the perspective of the federal budget (c.f. Treasury and IRS, the entities "worried" here) it will absolutely decrease revenue and "further balloon the cost of the tax cuts". It's true that the loss would be to the states' tax revenue and not the taxpayers, but I don't see why that merits the kind of spin you're trying.

Yeah. The truth is that before, local and state governments could effectively carve out their tax revenues out of the federal government's tax revenues, with limited impact on what their constituents would pay in total tax.

That ended with this tax cut.

So now these states have a choice : either their constituents are actually made to pay for the budgets of these governments (much more so than before, at least), or they limit their spending to the value of the SALT deduction.

What spin you want to put on this, feel free to do it, but let me give you some ideas.

"Federal government no longer to pay for California/Illinois/... pensions !"

"States now responsible for the money they spend"

Or, how about:

"Federal government imposes massive budget cuts on democratic governments !"

"Costs of Trump tax cut unilaterally imposed on state governments !"

They're all true, sort of.

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

#65

Post by JumpCrisscross »

dahdum wrote: post #63
JumpCrisscross wrote: post #62

Earlier quoted context omitted.

I won't argue for SALT per se . I do have an issue with the political logic the Congress used in singling out Democratic states. Furthermore, the bill as a whole was regressive. Arguing for the progressive lifting of a specific subsidy, within the general context of a regressive bill that increases interstate subsidies, is hypocrisy. So is requiring food stamp recipients to undergo a battery of expensive tests while…

I don't think I'm being hypocritical for defending a good policy in a bad bill.

Quite fair--my apologies.

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

#66

Post by toast0 »

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 previously said these types of programs were fine [1], although in a way intended not to set prescedent. There are a lot of other cases referenced in the memo, some of which probably did set some prescedents. State governments could easily set up targeted funds, if just dropping the money into the general fund is a non-starter.

[1] https://www.irs.gov/pub/irs-prior/p526--2011.pdf

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

#67

Post by Spooky23 »

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.

If you live in New York, New Jersey, California, etc, a large percentage/majority of homeowners are impacted by the $10k cap.

But you need to clear $24k in deductions (as a married couple) to even take that deduction.

The average homeowner loses, as they can’t cross the threshold, and every marginal state/local tax dollar costs 15-25% more than it did before.

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

#68

Post by lr4444lr »

JumpCrisscross wrote: post #40
lr4444lr wrote: post #36

Earlier quoted context omitted.

I don't think you're understanding how this is being constructed: the money wouldn't be going to the government (i.e. directly to the department of finance), precisely for the reason you're describing. That's why they're floating the idea of establishing charitable institutions under a kind of trusteeship in the municipalities as per the bylaws of what those shell entities will be. EDIT: Stated specifically, for NY:…

> 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.

Disclosure: I am not an accountant or tax lawyer.

In the case of school districts, easily the largest line item of the SALT liability for New Yorkers, The quo would be educational services. Anyone who donates to one of these "charities" and then puts a child in the school system could be at serious risk for tax evasion. It doesn't matter legally if the "charity" is also floated by other revenue streams. It's about what the filer claims and what he receives. I am pretty sure the IRS has a history of formulas to apply for figuring out how much is rendered in services[0]. Per pupil expenditure would be a likely candidate. Perhaps those with no children in the system would be safe.

The analogy with the church would be if they were giving your child a free or discounted on religious school admission as a contingency of how much money you donate. You can't write off donations like that[1]

[0] https://www.irs.gov/pub/irs-pdf/f8283.pdf

[1] https://www.irs.gov/publications/p526#en_US_2017_publink1000... - "Contributions From Which You Benefit": .... "Tuition, or amounts you pay instead of tuition. You can't deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. You also can't deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a "donation."

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

#69

Post by [deleted] »

tango24 wrote: post #3
koolba wrote: post #2

> New York recently began allowing taxpayers to convert local property taxes into charitable contributions, which are fully deductible from federal taxes. Other states, like New Jersey and Connecticut, have been moving forward with similar plans to reclassify state taxes as charitable contributions. If they consider their taxes a charitable contribution I should be able to decide to not pay it. I know a lot of charit…

Wait, property and state taxes are already deductible on federal 1040, right? So why are the states even doing this? The article is paywalled so surely I’m missing some info here.

[deleted]

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

#70

Post by Spooky23 »

lr4444lr wrote: post #25
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 following your latter point: isn't the flat rate for the higher standard deduction progressive?

Not really.

It’s subsidizing sparsely populated states that either don’t need to or don’t care to provide the state/local services that populated places need.

Post reply on HN