
I.R.S. Warns States Not to Circumvent State and Local Tax Cap - koolba
https://mobile.nytimes.com/2018/05/23/us/politics/irs-state-and-local-tax-deductions.html
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larkeith
"...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 - the cost remains precisely the same, it's an
attempt by certain high-tax states to avoid a tax increase designed to
partially offset the static cost.

~~~
drak0n1c
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.cbo.gov/publication/53651)

[https://www.investors.com/politics/editorials/trump-tax-
cuts...](https://www.investors.com/politics/editorials/trump-tax-cuts-
revenues-deficits-paying-for-themselves/)

~~~
selectodude
"For the 2018–2027 period, CBO now projects a cumulative deficit that is $1.6
trillion larger than the $10.1 trillion that the agency anticipated in June.
Projected revenues are lower by $1.0 trillion, and projected outlays are
higher by $0.5 trillion."

"Laws enacted since June 2017—above all, the three mentioned above—are
estimated to make deficits $2.7 trillion larger than previously projected
between 2018 and 2027, an effect that results from reducing revenues by $1.7
trillion (or 4 percent) and increasing outlays by $1.0 trillion (or 2
percent). The reduction in projected revenues stems primarily from the lower
individual income tax rates that the tax act has put in place for much of the
period. Projected outlays are higher mostly because the other two pieces of
legislation will increase discretionary spending. Those revenue reductions and
spending increases would result in larger deficits and thus in higher interest
costs than CBO previously projected."

Thanks for the completely unsourced editorial from a really trash biased
source, but it definitely requires that you don't read a single word from the
CBO report.

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koolba
> 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 charities I’d rather give money to then the government.

~~~
tango24
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.

~~~
Spooky23
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.

~~~
bcheung
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.

~~~
Spooky23
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.

~~~
bcheung
The 2017 standard deduction for married couples was $12,700 (compared to $24K
in 2018). So the average homeowner also gets an additional $11,300 tax free.
Granted so do non-homeowners.

I don't think the "average homeowner" would complain that they can't take as
big of a homeowners deduction when the net result is they are exempting a
larger portion of their income regardless.

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gnicholas
TLDR: the tax reform bill put a cap on deducting state and local taxes, which
were previously fully deductible. Now you can only deduct $10k between
property tax and state income taxes.

Residents of CA, NY, NJ, etc. easily hit these limits, so some of these states
are giving residents other ways to effectively pay their state/local taxes
while maintaining full deductibility for federal tax purposes.

Now the IRS is trying to fight back against these rules. But the IRS will have
a difficult time drawing distinctions between the existing allowed deductions
and the novel deductions they are trying to exclude.

As a (former) tax lawyer, I agree that this is an uphill battle for the IRS.
If the states do a good job of creating alternatives to state income taxes,
the IRS will have a very tough time defeating them in court.

It's interesting to see the Republican administration attempting to close
these "loopholes" and heavily-Democrat states arguing in favor of said
"loopholes". Quite a role-reversal!

Edit: clarified language in last paragraph

~~~
ngoldbaum
Capping the state and local tax deduction isn’t closing a loophole. It’s
punishing blue states for funding social services and state government via
state taxes.

~~~
gnicholas
You’re right. The “loopholes” that people are discussing are the novel
workarounds to get around the cap.

When I said “enforce” loopholes I meant they are trying to defeat them.

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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).

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ojbyrne
An obvious solution (though not necessarily a good idea) is to raise state
corporate taxes to offset the federal cuts and lower state individual rates
correspondingly.

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adventured
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. 1%
were going to households earning $50,000 or less. The tilt is obvious: this
was a tax benefit for better off persons, a way for higher income earners to
avoid paying the full high tax rates in states like New York and California.

This is an extremely ugly hypocrisy as it pertains to what their platform is
supposedly all about. I've yet to see very many prominent people on the left,
either politicians or media, call it out. It also defangs the left's ability
to pursue Republicans for their favoritism toward high income brackets
regarding taxes: they're plainly arguing & working to preserve a tax cut for
higher income earners.

~~~
joejerryronnie
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.

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mindslight
Enough of a push for some states to grow a backbone, stand up for their
citizens, and work towards expelling this ever-consuming totalitarian USG?
Nah, probably not.

~~~
virmundi
We are to pick this as a topic to fight back on? How about fighting back on
law requiring people to purchase a product that they don’t want? No, USG says
I have to have insurance while I don’t use doctors in network because they are
worth less than WebMD. Instead I go to a doctor that I pay $160 out of pocket
for a full hour visit that keeps notes on me that help to inform my future
care.

Fighting what largess the USG wants to afford in deductions is silly. They
could say there is 0 deduction for State taxes and be within their rights. NY
is sulking because their government has gotten so out of hand that they have
to strangle their citizens to avoid total default.

~~~
duxup
Aren't networks and medical insurance a problem across the board? I've had
that problem on employer provided insurance plenty of times... it's got
nothing to do with the federal requirements, it's just how dorked up the
medical industry is.

I get what your'e saying but the details if what you describe is the a whole
healthcare industry issue. Too often I see "OMG THIS IS THEIR FAULT" no it's
just how the insurance industry is and nobody has a backbone enough to deal
with that tangled mess. This networks and providers have been an issues since
before any federal requirement(s).

~~~
virmundi
Here’s where it is their fault. I quit my job, moved to Florida. I figured my
wife and I could get a high deductible plan like my former employer provided,
and save $100/month into our new HSA all for $400. We had a plan picked out
from Florida Blue. Then, bam! I couldn’t get that plan anymore. Federal
regulators required baseline features that moved that plan to, and I shit you
not, $730. That’s more than my mortgage. So we used my wife’s company plan. No
HSA. No asset accumulation. Just pure cost. Her doctor, same as mine, is not
in network and does not take insurance. So that’s $1,500 a year that doesn’t
go to the yearly 12k deductible.

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bcheung
Classifying local taxes as "charitable contributions"? I'm really on the fence
about this.

On the one hand, it seems an absurd and grossly inaccurate characterization,
borderline lying and definitely tax evasion.

On the other hand, there's this:

"The powers not delegated to the United States by the Constitution, nor
prohibited by it to the States, are reserved to the States respectively, or to
the people."

Also, someone needs to tell the IRS that they don't get to dictate Federal
law. The legislative branch decides the laws, the judicial branch interprets
them. The IRS is neither.

~~~
noobermin
Not really. The IRS is enacting the law Congress gave them, as it's supposed
to. You can disagree with that law (I do) but I don't see them stepping
outside their constitutional authority

~~~
bcheung
In spirit, yes, but I think this is a matter of debate and ultimately will
need to be decided by the tax courts. The states are following the letter of
the law but definitely circumventing the spirit of the law. This really comes
down to how much leeway the Federal government, more specifically the tax
courts, gives the IRS.

