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Officials in New York, New Jersey, California, and Maryland are going to the mat against the White House, reworking their tax codes to ease residents' pain from new limits to federal deductions for state, local and property taxes.
Starting this year, the Tax Cuts and Jobs Act, the recently enacted federal tax overhaul, caps payers' deductions on their property, state and local income taxes (SALT) at $10,000.
In 2015, the average New Yorker's SALT deduction was more than $22,000. In New Jersey and California, those deductions were around $18,000, while Marylanders claimed an average deduction of nearly $13,000.
Previously, there was no limit on deductions for these local levies. The change means many residents in these states — and many others — will now pay more to the federal government. (See chart below.)
SALT in the woundThe $10,000 cap on state and local taxes are a blow tojust a handful of states. Hover for details.AKALARAZCACOCTDCDEFLGAHIIAIDILINKSKYLAMAMDMEMIMNMOMSMTNCNDNENHNJNMNVNYOHOKORPARISCSDTNTXUTVAVTWAWIWVWYGraphic by Nick Wells | Source: IRS via the Tax Policy Center
"We're attempting to come up with ways to negate and blunt the harsh and unfair Republican tax policy," said Kevin de Leon, the Democratic leader of the California Senate.
The new tax law does away with most itemized deductions and doubles the standard deduction to nearly $12,000 for individuals and $24,000 for married couples who file jointly. The law also eliminates personal exemptions.
To combat the new SALT deduction cap, politicians are proposing some creative concepts.
Some of the ideas include granting a charitable deduction — which remains uncapped — after filers pay property taxes. Another idea does away with income taxes and applies a statewide payroll tax to be paid for by employers — which is deductible to them.
"The whole intent is to ensure that you get the benefit of the deduction you would otherwise lose," said Joseph Bankman, the Ralph M. Parsons professor of law and business at Stanford Law School.
The White House has expressed its disapproval.
"I hope that the states are more focused on cutting their budgets and giving tax cuts to their people in their states than they are in trying to evade the law," Treasury Secretary Steven Mnuchin said at a news briefing this month.
"The whole intent is to ensure that you get the benefit of the deduction you would otherwise lose."-Joseph Bankman, Stanford Law School
However, Robert Mujica, New York's budget director, said it's impossible for the state to not react.
"What Washington did to New York was say 'We're going to basically change the laws entirely and upend your system, oh, and by the way, don't make any changes to adjust to it,'" he said.
Here's how three states are working to combat the new tax law.
California [California State Senate leader Kevin de Leon.]
Michael Tullberg | Getty Images
California State Senate leader Kevin de Leon.
In early January, California Senate leader de Leon introduced a bill that would allow residents to pay some of their state taxes to the California Excellence Fund, a state charity. In turn, taxpayers would be able to deduct the amount of their charitable contribution on their federal returns.
STATE AND LOCAL TAX DEDUCTIONS