How California Is Responding To Tax Overhaul Bill One deduction targeted by the new tax bill was the ability for taxpayers to deduct taxes paid to their states and localities from their federal tax bills. Now, states like California are looking for ways to ease that loss for their residents.
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How California Is Responding To Tax Overhaul Bill

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How California Is Responding To Tax Overhaul Bill

How California Is Responding To Tax Overhaul Bill

How California Is Responding To Tax Overhaul Bill

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One deduction targeted by the new tax bill was the ability for taxpayers to deduct taxes paid to their states and localities from their federal tax bills. Now, states like California are looking for ways to ease that loss for their residents.

ROBERT SIEGEL, HOST:

Most people are expected to pay less in federal income taxes for this year under the new law that President Trump signed last month. One big exception, though - people who live in states with high incomes, high cost of living and high state and local taxes. Those are mostly blue states, including California. One of the first things on the California state legislature's agenda this year is a plan to strike back.

Senate Leader Kevin de Leon, who's also running for the U.S. Senate, is proposing letting Californians make charitable contributions to the state in exchange for state tax credits. The new law caps the deduction for state and local taxes at $10,000, but charitable contributions are not capped. Senator de Leon joins us now from Sacramento. Welcome to the program.

KEVIN DE LEON: Oh, thank you, Robert.

SIEGEL: If I've got this right, you're proposing a one-to-one exchange, a dollar into a new charitable state fund for a dollar off one's state taxes. Do I have that right?

DE LEON: That is correct. So assume you're the average taxpayer in California that deducted $22,000 in state and local taxes from your federal tax returns. Under this proposal, you could contribute conceivably $22,000 to the state charitable fund, and you would get $22,000 off your state tax obligation. Then, what you would do is you would use the federal charitable contribution rules. The taxpayer can deduct that entire contribution from their federal taxes, exactly as they would have under the state and local tax deduction that Trump wiped out.

SIEGEL: But does equating the state government - which is what would happen with this money given to the fund, it would pay for the state government - does equating state government with a charitable institution pass a smell test?

DE LEON: It does pass the smell test because we're already doing it here in California. I authored a measure back in 2014 that allows for charitable donations to state college affordability grants. So we have a couple other red states, in fact, who picked up this novel idea, the states of Florida as well as Arizona. It is a question if Paul Ryan or Mitch McConnell or, through an executive order, if Trump himself attempts to revoke our authority as a state. This is the clash between the state government and the federal government. And we will see it soon.

SIEGEL: I'm assuming that those of us who exceed the cap in our state taxes, or those of us who pay more taxes, have more income. Are we talking about higher income Californians who would benefit from this? And how many would?

DE LEON: We actually - we're talking about all Californians, not just those with disposable income. But we're talking about middle-class folks. We're talking about every Californian who would like to make a contribution...

SIEGEL: But people who pay more in state and local taxes than $10,000, though.

DE LEON: That is correct, absolutely correct.

SIEGEL: Let me just return to that one point about whether this really is a charitable donation. If I make a donation to a California excellence fund knowing that I will get $1 back for every dollar from the state, from the very same institution that's operating the fund, does that really qualify as a charitable donation? I've made no sacrifice whatever to make that gift.

DE LEON: Well, I could say this - that as of today, from a ruling back in 2011, the IRS, they allow these types of donations to any state general fund to be treated as a regular charitable fund donation. That is the law. That is permissible. So what we're doing is en masse taking advantage of this opportunity to do a roundabout, if you will, against policies from Washington that are very hurtful towards a state like California.

SIEGEL: But the new twist is making it a 100 percent credit against your state income taxes...

DE LEON: That is correct.

SIEGEL: ...Not getting it back.

DE LEON: That is correct.

SIEGEL: You're confident of the success of this measure, or do you think this could be a good idea that that ends with the IRS in court?

DE LEON: Well, I think this is an excellent idea. But we'll have to see what type of influence Donald Trump exerts on the IRS. We have no other choice but to move forward with this type of policy because, in the end, the tax policy that was just passed in Washington will disproportionately hurt a state like California. And when you hurt a state like California, you're hurting the rest of the country, because we are the economic engine for the nation.

SIEGEL: California State Senator Kevin de Leon, thanks a lot for talking with us today.

DE LEON: Robert, thank you so very much.

SIEGEL: And California is not alone in its effort to lessen the effect of the new tax law. New York Governor Andrew Cuomo took on the law in his state of the state address today.

(SOUNDBITE OF ARCHIVED RECORDING)

ANDREW CUOMO: It is crass. It is ugly. It is divisive. It is partisan legislating. It is an economic civil war. And make no mistake, they are aiming to hurt us. We must take dramatic action to save ourselves and preserve our state's economy.

SIEGEL: Cuomo says that action includes exploring new tax structures, including the charity loophole that we just heard about and also a lawsuit against the Trump administration.

(SOUNDBITE OF DJ PREMIER'S "CHANGE")

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