Saturday, January 13, 2018
California is trying to Become a Charity as a Tax dodge
California State Senate President is proposing legislation for California to create a government owned charity, the California Excellence Fund. The idea is that you could make charitable contributions to the state in lieu of paying taxes. Is it possible California, the Golden State, will now become the Giving State? Not likely! California is one of several high tax, blue states apoplectic over the new Tax Reform Act. Their solution to every fiscal problem is simple: raise whatever taxes you can. They don’t worry about taxing the middle class and the rich by telling them not to worry. They can always deduct the state and local taxes by itemizing on their federal tax returns. The new tax law puts an end to that ploy. It limits the state and local tax deduction to $10,000 for those who itemize. Senate Majority Leader Kevin de Leon and others are expressing solitude for the high income earners in their state. They aren’t offering any relief to the 80+% of California taxpayers who will itemize. After excoriating the 1%ers, they now realize they need them, especially for the extra 3% tax on millionaires. The top 1% in California pay about 50% of the state’s income taxes. They are the golden goose that is being plucked in the Golden State. Roughly 91,000 Californians pay the 13.3% rate. Many of these could join the exodus out of high tax states, such as California, New York and Connecticut, to Florida, Nevada, and Texas. They could lower taxes, but the public employee unions oppose lowering taxes. They want to increase them to keep the funds going to public employees, their pension plans and health coverage, even for retirees. California has the highest marginal income tax rate in the nation, 13.3% for millionaires. The basic state sales tax is 7.25%, but local taxes can raise it a few points. Thus, they fight to maintain current benefits and raise taxes to cover shortages. Income taxes, excise taxes, sales taxes, gas taxes, tobacco taxes, marijuana taxes – they keep rising in the legislature’s insatiable appetite for money to spend on favored constituencies, especially the public employees. California’s problem is an addiction to spending. Governor Jerry Brown has just proposed a 2018-19 general Fund budget of $131.7 billion, an increase of $.6 billion over last, He projects a $6.1 billion surplus, of which he wishes to allocate $5 billion to the state’s rainy day fund. The profligate legislature is unlikely to go along. They like to spend, spend, spend – not save. California’s general fund has risen $40 billion in Governor Brown’s eight years as governor. California would remain a redistributionist state rather than a giving state. The Democrats just don’t want the federal government mucking up their tax scheme. The beneficiaries of the California Excellence Charity will be the state’s legislators, who will be given the power to spend the receipts. Call it a tax of charitable contribution, it will still be spent the same way by the legislature. California has $464.4 billion in unfunded obligations. State and local pension plans are underfunded by about $200 billion. California is not a charity case. It is a basket choice. New York is thinking of replacing the state income tax with a deductible payroll tax. Such a payroll tax would truly be a job killer. The “charitable” loophole has one major problem. One of the conditions on charitable contributions is you cannot deduct any part f it that was a benefit. For example, you donate $500 and get something of value, perhaps a $50 ticket, then you can only deduct $450.00. The charitable contribution in the California plan would be matched by an equal tax credit; in short a 1:1 benefit. None of the “charitable” contribution to the state of California would be deductible! The new, semantical charitable contribution fails the duck test: If it looks like a duck, quacks like a duck, and waddles like a duck, it’s a duck. A tax by any other name is still a tax.