New York Times, Democrats in High-Tax States Plot to Blunt Impact of New Tax Law:
Democrats in high-cost, high-tax states are plotting ways to do what their states’ representatives in Congress could not: blunt the impact of the newly passed Republican tax overhaul.
Governors and legislative leaders in New York, California and other states are considering legal challenges to elements of the law that they say unfairly single out parts of the country. They are looking at ways of raising revenue that aren’t penalized by the new law. And they are considering changing their state tax codes to allow residents to take advantage of other federal tax breaks — in effect, restoring deductions that the tax law scaled back.
One proposal would replace state income taxes, which are no longer fully deductible under the new law, with payroll taxes on employers, which are deductible. Another idea would be to allow residents to replace their state income tax payments with tax-deductible charitable contributions to their state governments.
Such ideas may sound far-fetched. And until recently, they were mostly the province of tax professors and bloggers. But they are now getting serious consideration in state capitols where some lawmakers see the Republican law as a thinly veiled assault on parts of the country that typically vote for Democrats. ...
Some proposals are more complex. Kirk Stark, a law professor at the University of California, Los Angeles, has suggested that states encourage residents to donate money to their state governments, then let the governments credit those donations against their state income taxes. Such donations would qualify as charitable donations, which are still fully deductible on federal taxes.
Mr. Stark noted that such programs already existed, albeit in a much more limited form. Several states let residents count donations to private schools as state tax payments under certain circumstances, an initiative that conservatives have promoted as a step toward school vouchers.
Another idea would be for states to partly or completely replace their income taxes with payroll taxes paid by employers, similar to existing taxes for Social Security and unemployment insurance.
In theory, such a move wouldn’t change after-tax income for either companies or individuals. It would just change where the tax checks were coming from. Companies would reduce workers’ pay by the amount of the payroll tax, and would be able to deduct the payments on their federal taxes. Because they would never receive the money, workers wouldn’t be taxed on it.
“In effect, it preserves the state income tax deduction,” said Dean Baker, a liberal economist who has been pushing for the plan.
Both ideas — and others like them — would face logistical hurdles, legal challenges and, most likely, opposition from Congress and the federal government. But they are nonetheless rapidly moving from the realm of academic theory into actual policymaking.