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Wed May 16, 2018, 01:43 PM

Is this tax avoidance? No, think of it as tax revenge. (SALT)


SALT: Deductions for such state and local taxes were unlimited - before the recent tax scam. Not so anymore.

A lot of bridge/tunnel New Jerseyans -
The bill intentionally trashed many Jersey residents by limiting state and local tax deductions on federal tax returns to $10,000 a year. That’s less than half the average real estate tax bill for Jersey residents.

Not to mention our state income taxes and, for many Jersey residents, New York state income taxes.

Not my rep - of course my rep Leonard Lance (R)would never ever use such 'harsh' language to point out how ABSURD the tax bill enacted by his co-horts is.

Gottheimer talks about “moocher states” — a phrase I’ve fallen in love with — that, unlike New Jersey, get back far more money from Washington than their inhabitants send there.

“The moocher states stole our wallets by gutting SALT,” Gottheimer told me, “and it’s only fair for us to fight back any way we can.”

Referenced in the brief WaPo Article - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3098291

Federal Income Tax Treatment of Charitable Contributions Entitling Donor to a State Tax Credit

Authors of the 44 page document - ●Posted: 11 Jan 2018 ●Last revised: 13 Mar 2018

Joseph Bankman, Stanford Law School
David Gamage, Indiana University Maurer School of Law
Jacob Goldin, Stanford Law School
Daniel Jacob Hemel, University of Chicago - Law School
Darien Shanske, University of California, Davis - School of Law
Kirk J. Stark, University of California, Los Angeles (UCLA) - School of Law
Dennis J. Ventry, University of California, Davis - School of Law
Manoj Viswanathan, University of California Hastings College of the Law


This paper summarizes the current federal income tax treatment of charitable contributions where the gift entitles the donor to a state tax credit. Such credits are very common and are used by the states to encourage private donations to a wide range of activities, including natural resource preservation through conservation easements, private school tuition scholarship programs, financial aid for college-bound children from low-income households, shelters for victims of domestic violence, and numerous other state-supported programs. Under these programs, taxpayers receive tax credits for donations to governments, government-created funds, and nonprofits.

A central federal income tax question raised by these donations is whether the donor must reduce the amount of the charitable contribution deduction claimed on her federal income tax return by the value of state tax benefits generated by the gift. Under current law, expressed through both court opinions and rulings from the Internal Revenue Service, the amount of the donor’s charitable contribution deduction is not reduced by the value of state tax benefits. The effect of this "Full Deduction Rule" is that a taxpayer can reduce her state tax liability by making a charitable contribution that is deductible on her federal income tax return.

In a tax system where both charitable contributions and state/local taxes are deductible, the ability to reduce state tax liabilities via charitable contributions confers no particular federal tax advantage. However, in a tax system where charitable contributions are deductible but state/local taxes are not, it may be possible for states to provide their residents a means of preserving the effects of a state/local tax deduction, at least in part, by granting a charitable tax credit for federally deductible gifts, including gifts to the state or one of its political subdivisions. In light of recent federal legislation further limiting the deductibility of state and local taxes, states may expand their use of charitable tax credits in this manner, focusing new attention on the legal underpinnings of the Full Deduction Rule.

The Full Deduction Rule has been applied to credits that completely offset the pre-tax cost of the contribution. In most cases, however, the state credits offset less than 100% of the cost. We believe that, at least in this latter and more typical set of cases, the Full Deduction Rule represents a correct and long-standing trans-substantive principle of federal tax law. According to judicial and administrative pronouncements issued over several decades, nonrefundable state tax credits are treated as a reduction or potential reduction of the credit recipient’s state tax liability rather than as a receipt of money, property, contribution to capital, or other item of gross income. The Full Deduction Rule is also supported by a host of policy considerations, including federal respect for state initiatives and allocation of tax liabilities, and near-insuperable administrative burdens posed by alternative rules.

It is possible to devise alternatives to the Full Deduction Rule that would require donors to reduce the amount of their charitable contribution deductions by some or all of the federal, state, or local tax benefits generated by making a gift. Whether those alternatives could be accomplished administratively or would require legislation depends on the details of any such proposal. We believe that Congress is best situated to balance the many competing interests that changes to current law would necessarily implicate. We also caution Congress that a legislative override of the Full Deduction Rule would raise significant administrability concerns and would implicate important federalism values. Congress should tread carefully if it seeks to alter the Full Deduction Rule by statute.

It's really worth it to read the 44 pages if you have the time! Reject, get loud, protest if those Republicans in Washington DC try to alter the full deduction rule.

Who else is in the boat of $10K doesn't even begin to touch my property taxes? And I'm not in some cheap knockoff McMansion outside of Manhattan.

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