California Senate Passes Workaround to Federal Tax Overhaul

SACRAMENTO, Calif. (CN) – The California Senate on Tuesday passed a bill intended to help Californians evade the consequences of the recent federal tax overhaul.

Senate Bill 227, authored by Senate President pro tem Kevin de Leon, allows California to earn tax deductions by contributing to California Excellence Fund, a fund within California’s budget that contributes directly to state-funded higher education institutions.

“It is my duty to do everything within my power to protect the taxpayers of CA against a very capricious, mean-spirited tax policy that unfairly targets Californians,” de Leon tweeted Tuesday afternoon.

Republican state lawmakers continue to complain that contributing to public coffers and the state government should not be equated with charitable contributions.

But de Leon and other Democratic lawmakers say the federal overhaul weaponizes the tax code to punish Democratic voters in heavily blue states, leaving them little choice but to get creative in protecting their own coffers and constituents.

“The new Republican tax law deliberately targets Americans in blue states that didn’t vote for Donald Trump, and it could cost Californians billions of dollars,” de León said.

The latest bill is one of two crafted in direct response to the tax reform written by congressional Republicans and signed into law by President Donald Trump before the new year.

De Leon slightly reduced the tax credit attached to contributions to the excellence fund, taking it down from the previous dollar-for-dollar formula to 85 percent. On top of that deduction, taxpayers will be able to claim federal and state tax deductions.

California legislators, some of the most vocal critics of the Trump administration in the political landscape, have complained that the tax reform bill was aimed solely at assisting corporations and very wealthy individuals while failing to assist middle- and low-income individuals and families still smarting from the Great Recession that began a decade ago.

They further maintain the federal government seeks to make up lost revenue by tailoring the tax code to punish wealthy blue states like New York and California.

Specifically, the law caps tax deductions at $10,000, which de Leon says will cost taxpayers $36 billion in the current year and up to $90 billion by the year 2024.

The average California taxpayer claims around $18,000 a year in deductions, according to de Leon’s office.

But the law has prompted speculations that the move may not be legal, with reports circulating that the U.S. Department of Treasury sent California and other similarly situated states a letter warning them against concocting legislative workarounds.

The federal government could make bills like de Leon’s illegal, but there are questions about how much momentum there is to do that given that many red-state legislatures use similarly crafted bills to fund private education.

According to de Leon, 17 states – including Alabama, Arizona, Florida, Georgia, Illinois, Indiana, Kansas, and Louisiana – use a plan similar to California’s new one to fund education.

There is also a separate bill, Senate Bill 581, circulating. That bill will create the California Excellence Fund that will allow donors to contribute to the university systems, the community colleges, K-12 education and state parks.

SB 227 must still clear the Assembly before going to Gov. Jerry Brown’s desk.

 

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