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  1. #11
    Democrats' plan to help California taxpayers doesn't pass the smell test. They should still go for it

    George Skelton

    Capitol Journal

    Even for California government, this seems nutty: calling a state income tax payment a "charitable contribution" so it can be deducted on a federal tax return.

    I recently wrote that the idea was cockamamie. Then last week, it was actually introduced as legislation by state Senate leader Kevin de Leon (D-Los Angeles).

    On second thought, maybe the concept isn't so screwy. And even if it is, given the pugnacious, polarized time we're caught in, it's probably a justifiable tax dodge in an effort to defend millions of California taxpayers from President Trump and the Republican Congress.

    It fits snugly with the current shoot-first, ask-questions-later political climate.

    Under the new GOP tax law, 6.1 million Californians who itemize their federal income taxes stand to lose an average of $8,438 in state and local tax deductions. That's because the law caps state and local tax deductions - mainly on income and property - at $10,000 total. The average California deduction was $18,438 in 2015, the latest year with complete data, according to the Government Finance Officers Assn.

    De Leon's solution, gleaned from academicians, is to allow Californians to take advantage of a federal loophole and deduct more than the $10,000 cap. They'd do that by claiming the amount over the limit as a charitable contribution to a state California Excellence Fund. There's no dollar limit on charitable contributions.

    California government would treat the so-called contribution as a state income tax payment. There'd be a 100% state tax credit for the "donation." All the money would flow into the general fund for regular government programs. And the taxpayer could soften the federal tax bite by exceeding the deductions cap.

    At least that's the theory. Trump and Congress probably would have a different idea: Forget it. The IRS could quash it, or Republican lawmakers could amend the law.

    "This isn't a pie-in-the-sky idea," insists UC Davis tax law professor Darien Shanske. "It could fit comfortably with existing law. That's not to say Congress wouldn't change existing law."

    UCLA law professor Kirk Stark has studied this concept for years and notes "it's not a new thing. Many states have charitable tax credits." Even California does. But no state has anything approaching the scale that De Leon proposes.

    In all, 21 states have programs that offer tax credits for donations to specific causes. Popular in some Southern red states are generous credits for funding private school vouchers.

    In California, there's a program - created by a De Leon bill in 2014 - that offers a 50% tax credit for donations to the Cal Grant college scholarship fund. There's also a program that allows a private property owner to grant an easement to a land conservancy and receive a 55% tax credit. Several states offer that.

    All that's OK with the IRS. But concocting a scheme so millions of Californians can deduct untold additional thousands of dollars on their federal returns would undoubtedly rattle the IRS and Trump.

    But the president would need to use a scalpel targeted at California and other blue states trying to evade federal taxes, rather than taking a meat cleaver to every tax credit in the country. Trump presumably wouldn't want to anger loyal red states that use tax credits to fund pet conservative causes.

    Democrats suspect Trump of vengefully picking on high-tax blue states anyway.

    "The Republican tax scam offers corporations and hedge fund managers massive tax breaks and expects California taxpayers to pick up the costs," says De Le?n, who's running against veteran U.S. Sen. Dianne Feinstein, a fellow Democrat.

    But, I asked him, is his bill really good tax policy?

    "What is not good tax policy," he replied, "is what happened in Congress. It's the worst tax policy in the history of this country. Perhaps the world."

    Actually, California's current tax policy is pretty rotten - literally rotted out from decay - and the Legislature should be focused on rebuilding it. But very few are interested. It's too tough politically.

    As I've often written, the state tax system leans too heavily on high-end income taxes and ignores California's growing service economy. There's virtually no sales tax on services. The result is a highly volatile system that produces gushes of revenue in good times, but slows to a trickle when the economy?s bad. It's periodically boom or bust for the state budget.

    What's needed is to lower income and sales tax rates and make up the lost revenue by extending the sales tax to services.

    Sen. Bob Hertzberg (D-Van Nuys) is drafting a bill to do some of that. It would extend the sales tax to services used by businesses, but not by individuals. He'd also lower middle-class income taxes.

    "Under Trump's plan, the business tax is going down," Hertzberg says. "So add a little extra state cost. It would still be deductible."

    But his bill would require a two-thirds majority vote. So it's doomed.

    De Leon's bill needs only a simple majority vote. So it can pass.

    Would Gov. Jerry Brown sign it? He hasn't said. It's not the kind of gimmicky stunt Brown would ordinarily sanction these days. But given that it's a dagger at Trump and Republicans, and is drawing national attention, he just might.

    It doesn't pass the smell test. But hardly anything political does these days. And it could save California taxpayers money. So open the windows and go for it.

  2. #12
    The Republican tax plan is a victory for the Democrats - maybe

    George Skelton

    Capitol Journal

    Republicans won the tax fight in Congress by overpowering Democrats. Now the battle begins to retain that power in next year's elections. Their celebrated victory could cost them control of the House.

    Theoretically anyway.

    Democrats need to pick up 24 Republican seats nationally to take back the House and end the GOP's control of Washington.

    Seven congressional races in California will be crucial. In all of those districts, voters elected Republicans to Congress last year, but they snubbed then-candidate Donald Trump and voted for Democrat Hillary Clinton.

    So the Democratic strategy is a no-brainer. The tax bill is unpopular in California and across the country. Trump is equally disliked in this state. Tie both around the Republican House incumbent and this makes a nice Democratic victory package. Maybe.

    How much does voting for the GOP tax bill really hurt vulnerable California Republicans?

    "The quick and easy answer is that 12 Republicans [who voted for the bill] just committed hari-kari," says Darry Sragow, a veteran Democratic strategist who publishes the nonpartisan California Target Book, which handicaps congressional and legislative races. "But whether that's true or not is unclear. There are an incredible number of unknowns."

    No one really knows how the Republican tax plan will play out. Few even seem to know precisely what's in it. One thing is certain, however: Individuals in high-tax Democratic states like California and New York will be worse off than people in lower-tax GOP states because of new limits on state and local tax deductions.

    In the final days of Republicans compromising among themselves, the GOP wisely softened the bill's impact on taxpayers who itemize deductions, as a third of California taxpayers do.

    The final bill will allow up to $10,000 in deductions of state and local taxes, which is especially important in California. There's currently no limit on those deductions. And the bill will permit mortgage interest deductions on new loans up to $750,000, rather than $500,000 as originally planned.

    Two of the most threatened California Republicans played it smart. Reps. Darrell Issa of Vista and Dana Rohrabacher of Costa Mesa took no chance on a voter backlash and shielded themselves by voting "no" on the bill.

    "The bill was improved, but not enough for a significant # of my constituents," Rohrabacher tweeted.

    Issa also tweeted that "the changes do not go far enough to guarantee tax relief for constituents in my district."

    The Cook Political Report, a national tip sheet for political junkies, rates the Issa and Rohrabacher races as toss-ups. Also rated a toss-up is the reelection bid of Republican Steve Knight of Palmdale. Knight joined all the other California Republicans in voting for the tax bill.

    Three other Republicans representing districts that voted for Clinton are rated by Cook as "leaning" their way for reelection. They're Reps. Mimi Walters of Irvine, Ed Royce of Fullerton and Jeff Denham of Turlock. A fourth, David Valadao of Hanford, is considered by Cook a likely winner for another term.

    But it's very early. What happens next November will depend on the quality of candidates and campaigns.

    Bombastic Democratic rhetoric - such as Gov. Jerry Brown likening Republican congressional leaders to "a bunch of Mafia thugs" - probably just drives GOP voters deeper into their party corner.

    There's enough natural California fear of the new tax law and resentment of President Trump to propel Democratic campaigns without hyperventilating.

    A poll released this week by the nonpartisan UC Berkeley Institute of Governmental Studies showed California's dislike for both the tax plan and the president. That's a potentially fatal combo for at-risk Republicans who voted for the bill. The tax plan was supported by only 30% of registered voters. It was opposed by 51%, including 42% who disliked it strongly. Opinions broke along party lines - with 60% of Republicans supporting it, 67% of Democrats against. But only one-third of Republicans felt that the bill will have a positive impact on California.

    A mere 30% of voters approved of Trump's job performance; 66% disapproved. Again, it was party line: 73% of Republicans approving but 93% of Democrats disapproving.

    In much worse shape was Congress: 15% approval, 76% disapproval. Even 70% of Republicans disapproved of the GOP Congress.

    "It's not a great year to run for reelection to Congress with congressional approval so low," says Mark DiCamillo, the poll director.

    Especially for a California Republican.

    But Wayne Johnson, a longtime Republican consultant, says his prognosis of the tax bill's political impact has changed. He's now more optimistic.

    Asked whether it could hurt Republicans' reelection efforts, Johnson replied: "The first reaction I had was probably yes. But the more I've looked at it and got into the details, I really don't think so. I think Republicans have done a terrible job of explaining it."

    "The effect of doubling the standard deduction [for non-itemizers] is huge," the consultant continued. "Nobody is looking at that."

    Sragow says: "Is it a good day for Democrats? Sure. They've got dreams of sugar plums in their heads. Republicans are tossing and turning. But that's just tonight."

    The stark reality of the bill's effects won’t be known until April 2019 when taxpayers file their tax returns for the first time under the new law. And that will be long after next November's elections.

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