Tuesday, April 16, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, March 25, 2018
The California Stupidity Fund
By Tom Yamachika @ 5:00 AM :: 4294 Views :: Taxes

The California Stupidity Fund

by Tom Yamachika, President, Tax Foundation Hawaii

One of the changes that was made in the Tax Cuts and Jobs Act of 2017, which applies to our federal tax returns for this year, is a limitation on deductions for state and local tax. Simply put, you can only deduct up to $10,000 in state and local tax. If you paid more, too bad, tough cookies. (This limitation applies only to non-business taxes. If you have a business and it pays taxes, such as our state GET, those taxes are fully deductible.)

Some government officials in high-tax states, such as California (which is now one of the only states with a higher income tax rate than ours), were not too happy about the limitation. California is now trying to enact a workaround, and some Hawaii lawmakers are actively considering similar legislation.

Specifically, the California Senate has passed a bill that establishes a “California Excellence Fund” that will accept contributions from people. The fund will be used to fund public works and other government projects, and Californians will get an 85% tax credit for amounts contributed to the fund. So, for example, if you owe $85,000 in California tax and you contribute $100,000 to the fund, an $85,000 credit is generated so you no longer owe money to the state. If the taxpayer gets a charitable deduction for the $100,000, the taxpayer would get much more benefits because there is no limit on deductions for giving to charity.

Our advice on doing the same thing in Hawaii: three words. It. Doesn’t. Work.

The main reason why it doesn’t work is that taxpayers who get a benefit, or something of value, from a charitable donation can only deduct the difference between the money they paid out and the benefit they got in return. That’s why a taxpayer who buys tickets to a benefit dinner for $100, for example, gets a letter from the charity saying that the dinner was $30, so the taxpayer can deduct the $70 difference.

In the California Excellence Fund example, the taxpayers who “donated” $100,000 were able to avoid paying $85,000 that was otherwise owed to California. Relief from debt is a benefit to the taxpayer just like the meal in the benefit dinner, so the taxpayers in that example will have a deduction for contributions of $15,000. They don’t owe California tax now, so there is no state tax deduction. They are, in fact, worse off. If they instead paid their tax and gave $15,000 to another charity, they would get a $10,000 state tax deduction and a $15,000 charitable deduction. That way they could write off $25,000 for the same cash outlay.

In January, while the California Senate was considering the scheme, some alert reporter asked Treasury Secretary Mnuchin about it when he gave a press briefing on other issues.

His reaction: “Ridiculous.”

Although we are in the process of selecting a new commissioner of the Internal Revenue Service, whoever it is will report to Mr. Mnuchin. So, it’s probably safe to assume that the IRS will take a dim view of the California Excellence Fund contribution scheme.

Given all of that, what do you think about establishing a California Stupidity Fund here in Hawaii?

---30---

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

Aloha Pregnancy Care Center

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

HIEC.Coop

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Moms for Liberty

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

July 4 in Hawaii

Kakaako Cares

Keep Hawaii's Heroes

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

MentalIllnessPolicy.org

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

NFIB Hawaii News

No GMO Means No Aloha

Not Dead Yet, Hawaii

NRA-ILA Hawaii

Oahu Alternative Transport

Obookiah

OHA Lies

Opt Out Today

OurFutureHawaii.com

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

ReRoute the Rail

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

School Choice in Hawaii

SenatorFong.com

Sink the Jones Act

Statehood for Guam

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

UCC Truths

US Tax Foundation Hawaii Info

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT