As the state Legislature reconvenes in Sacramento, lawmakers are wasting no time picking up right where they left off — finding new and creative ways to slam President Trump and block his policy agenda as it relates to California.
In his waning days as Senate President Pro Tem, Kevin de León (D-Los Angeles) is promoting what he calls the “Protect California Taxpayers Act.”
It’s designed to create workarounds to avoid the new $10,000 limit on state and local taxes that can be deducted on federal tax forms. That part of the new federal tax law is expected to slam states like California with high income tax rates and housing costs.
The bill has not been formally introduced yet, but according to people familiar with the details it would allow state taxpayers to make charitable donations to a “California Excellence Fund” in exchange for an equal reduction in state income taxes. The donation would be used by the state to fund government programs and the taxpayer would be able to deduct it on their federal IRS forms.
“The state would be held harmless and our taxpayers aren’t slammed to pay for the Wall Street tax cuts,” de León said on KQED’s Forum program.
De León said he’s modeling his bill on similar existing tax credits, such as one passed in 2014 that makes contributions to the Cal Grant college tuition program tax deductible.
That’s the theory, anyway.
“At some point one has to imagine the Internal Revenue Service would say, ‘You can’t do this anymore,’ ” said Alan Auerbach, director of the Robert D. Burch Center for Tax Policy and Public Finance at UC Berkeley. “How they would do that we don’t know.”
“This could end up in extended litigation, perhaps before the U.S. Supreme Court,” Auerbach said. “I don’t think this will be a smooth thing to do.”
However, UC Davis law school professor Darien Shanske does not dismiss the idea out of hand.
“These aren’t pie-in-the-sky ideas,” Shanske said. “You could design it in a way that would fit comfortably within existing tax law.”
Shanske said by lowering the deduction for state and local taxes, the federal government saves “hundreds of billions of dollars.” A workaround to make state taxpayers whole again would benefit 1 million to 2 million Californians, he says.
Any legislation that could be argued raises taxes would require a two-thirds vote in the Legislature. But given current vacancies caused by the sexual harassment scandal, it’s unlikely Democrats could muster the votes to get it to the governor.
And even if they do, it’s questionable that Gov. Jerry Brown would endorse an idea with so many legal and economic uncertainties.
In the meantime, it’s putting de León back in the headlines as he tries to get some traction for his campaign to unseat U.S. Sen. Dianne Feinstein.