The Oneida Daily Dispatch (Oneida, NY)
Federal tax overhaul could lead to changes in some states
The federal policy cuts tax rates andnearly doubles the standard income deduction. Yet it also caps or eliminates some popular itemized deductions, and sets the personal exemptions to zero.
CHERRY HILL, N.J. » In New Jersey and California, top Democratic officials want to let people make charitable contributions to the state instead of paying certain taxes. In Connecticut and New York, officials are exploring a switch from income taxes to new ones on payroll. Afewgovernors have even called for tax cuts.
The ideas are bubbling up as state lawmakers begin their 2018 sessions and assess the effects of the Republican tax overhaul that President Donald Trump signed into law last month. Lawmakers and governors in some states are grappling with how to protect their constituents.
The federal policy implements a maze of changes. It cuts tax rates and nearly doubles the standard income deduction. Yet it also caps or eliminates some popular itemized deductions, and sets the personal exemptions to zero.
For many Americans, the result is expected to be lower federal tax obligations, at least initially. Those facing higher bills are expected to be concentrated in some high-tax states.
With legislators starting their sessions and governors writing state budgets, the response is a political priority. The proposals are bold, though not yet fleshed out.
This week, New York Gov. Andrew Cuomo used his state-of-the-state speech to pledge to sue over the GOP tax plan, whichhe called “an assault” by the federal government. A lawsuit would add taxes to the growing list ofTrump administrationpolicies that Democratic states have challenged in court.
Other stateshavenotcommitted to sue, but some leaders have indicated they’ll explore the idea.
“I’mcertainly not a constitutional lawyer, but the notion that this is not constitutional is something we want to pursue,” said Phil Murphy, NewJersey’sDemocratic governor-elect.
Officials in California and Connecticut also said this week they were considering legal options.
In high-tax states, officials have been focused on protecting taxpayers from the impact of a new$10,000 cap on deductions for paying state and local taxes. In California, Connecticut, Massachusetts, New Jersey and New York, more than onethird of tax filers claim the state and local tax deduction on federal taxes; the average deduction in each state is over $15,000.
California state Senate President Pro Tem Kevin de Leon, a Los Angeles Democrat who is running for the U.S. Senate, introduced legislation this week thatwould allow people to make charitable donations to the state instead of paying income taxes. Thatwould allowthem to claim a charitable deduction on federal taxes.
“Our hard-earned tax dollars should not be subject to double-taxation, especially not to line the pockets of the Trump family, hedge fund managers and private jet owners,” de Leon said in a statement.
Another Democrat, New Jersey Gov.-elect Phil Murphy, announced a similar plan on Friday but said local governments also could implement it and apply it to property taxes.
Kim Rueben, a senior fellow at the liberal-leaning Urban-Brookings Tax Policy Center, said it remains to be seen whether the IRS would allow deductions for that kind of contribution if it’s rewarded with tax credits. There is some precedent for it, though: Shenoted that some states give tax credits in return for private-school scholarships and that the IRS allows deductions of those contributions.
In Connecticut, two Democratic legislative leaders want to replace income taxes on individuals with payroll taxes on employers.
Under the new federal tax law, employers’ state and local taxes would remain deductible. House Speaker Joe Aresimowicz andHouseMajority LeaderMatthewRitter sent a letter Wednesday asking a state commission to evaluate the idea. NewYork’s Cuomo said he’s looking at a similar change there.
Rueben saidthat for the approach to work, states would have to figure out what to do with the income of high-earners who receive money from investments rather than jobs — something Cuomo said he could address through a tax on carried interest.
Nicole Keading, an economist at the conservativeleaning Tax Foundation, said that change also could mean that states would replace progressive income tax structures with flat payroll taxes.
“You would be raising taxes on low-incomepeople,” she said.
The measure could be tough to pass this year with Cuomo and all members of the New York Legislature up for election. Assembly Minority Leader Brian Kolb, a Republican who is running for governor, said the state should focus instead on cutting taxes and spending.