California response to Trump’s tax law may beworth a try

California lawmakers are trying to find a workaround to the new federal tax law’s onerous provision reducing a commonly used tax deduction.

It’s questionable whether their idea — to treat the state like a giant charity — will withstand IRS, congressional and court scrutiny. But it’s worth a try.

At issue is the federal deduction for state and local taxes, known by the acronym SALT. In the past, the amount paid for state income taxes and local property taxes could be deducted from the income used to calculate federal income taxes.

Starting this year, the SALT deduction will be limited to $10,000. The change provides the single-largest federal government revenue increase to help cover the cost of the GOP tax bill President Trump signed Dec. 22, providing a massive wealth transfer to corporations and multimillionaires.

The $10,000 limit strikes a big blow at taxpayers with sizable incomes or high-value homes in states with high tax rates — mostly blue states. California, and the Bay Area in particular, will be one of the most affected.

More than 80 percent of California tax filers who itemize exceeded the $10,000 cap in 2015, according to the state Department of Finance. The average annual state and local tax deduction was $22,000.

But the new tax bill did not change the federal rules for deducting charitable contributions. So state Senate President Pro Tem Kevin de León proposes that California let taxpayers make donations to the state in lieu of their state tax bills.

They would then deduct those donations as charitable contributions on their federal returns. Effectively, it could fully restore the fed- eral deductibility of state income taxes.

Some tax experts understandably think this doesn’t pass the smell test.

“That’s not a charitable contribution, that’s paying off a debt,” said Daniel Lathrope, who teaches tax law at the University of San Francisco.

“It seems so transparent it’s hard to believe it would be permitted by the IRS,” adds Alan Auerbach, professor of economics and law at UC Berkeley. It certainly does. But law professors Dennis Ventry at UC Davis and Kirk Stark at UCLA insist de León’s plan merely takes advantage of existing federal law, which has permitted deductions for contributions from the origin of the nation’s tax system a century ago. And current law specifically permits deductions for donations to a state for public purposes.

They cite examples across the country of states, blue and red, allowing residents to take state tax credits for contributions of money to private school tuition scholarships and donations of land development rights to create conservation easements. The IRS has said the value of those donations can also be deducted from federal taxable income.

It’s unclear whether the IRS or the courts would let the California proposal stand. And Republicans in Congress would almost certainly try to block it.

But after watching the GOP, including California representatives, run roughshod over largely Democratic states like ours, it’s worth trying to fight back.