The Real Deal New York

Democrats in New York and California are fighting the tax overhaul. Here’s how

Lawmakers face an uphill battle
January 02, 2018 10:45AM

Gov. Andrew Cuomo and Phil Murphy (Credit: Getty Images and Murphy4NJ.com)

States hit hardest by the Republican tax overhaul are contemplating ways to remedy some of the legislation’s most costly provisions.

In New York, Gov. Andrew Cuomo signed an executive order allowing residents to prepay their 2018 property taxes as a way to avoid the new $10,000 cap on state and local deductions. He’s also indicated that more changes will be revealed when he presents the state’s budget in mid-January.

“They want to target us for certain provisions?” Cuomo said in a recent press conference, according to the New York Times. “Well, let’s see if we can redesign our tax code to get out of the federal trap that they set.”

One idea being floated is for states to partly or completely replace their income taxes with payroll taxes paid by employers, similar to taxes on Social Security and unemployment insurance. Companies would reduce workers’ pay by the amount of the payroll tax and be able to deduct it; because workers never receive the money, they wouldn’t be taxed on it.

In California, lawmakers are mulling a proposal to allow residents to replace their state income tax payments with tax-deductible charitable contributions to their state governments. Kevin de León, a Democrat who is temporary president of the California Senate, is consulting with Kirk Stark, a law professor at UCLA, and others to craft legislation aimed at reducing the impacts of the tax law, which he admitted was “gaming” the system.

“This is highly unusual tax policymaking,” de León told the Times. “However, this is a highly unusual time in the history of this country.”

Meanwhile, New Jersey’s soon-to-be sworn in governor, Phil Murphy, has indicated that he may challenge the tax law on constitutional grounds.

Daniel Hemel, a law professor at the University of Chicago, said Democrats should reconsider gaming the tax system to insulate high-tax states. “The Democratic Party’s long-term agenda requires the federal government being able to raise revenue,” Hemel said. “This would be short-termism at its worst, potentially setting back the progressive agenda for decades to come in response to a bad tax bill.” [NYT] — Kathryn Brenzel