Wednesday, September 26, 2018
Kirk Stark (UCLA) presents The Power Not to Tax: State Responses to TCJA 2017 at San Diego today as part of its Tax Law Speaker Series hosted by Jordan Barry and Miranda Perry Fleischer:
One of the most controversial provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) is the new limitation on the deductibility of state and local taxes Under that provision, for tax years 2018 to 2025, individual taxpayers may deduct only $10,000 in state and local taxes paid. This change in the law represents a significant increase in the after-tax cost of funding state and local public goods, particularly in those states where voters have demanded service levels requiring higher tax burdens. Perhaps not surprisingly, lawmakers representing these states have not responded favorably to these new limits. Following the enactment of TCJA, New York and several other states began considering legislation aimed at restoring the ability of their residents to fund state and local public services on a tax-favored basis.
States have considered a wide range of options, including shifting from non-deductible income taxes to deductible payroll taxes, imposing new entity-level taxes on pass-throughs such as partnerships and LLCs, and providing tax credits for charitable gifts to funds established by state and local governments to support public goods. The primary objective of this article is to look beyond the political rhetoric regarding so-called “SALT workaround” proposals and evaluate the structural features of the tax law that make these proposals a potentially attractive strategy for states to consider.