State leaders are looking for longer-term solutions. Some have raised the possibility of shifting away via taxes on individuals toward taxes on corporations, which are still fully deductible under federal law. nevertheless which could cause its own problems: Raising taxes on businesses could make which harder for those states to compete for companies along with jobs.
various other lawmakers have floated the idea of seeking out brand new sources of revenue, perhaps by legalizing — along with taxing — marijuana.
Some proposals are more complex. Kirk Stark, a law professor at the University of California, Los Angeles, has suggested which states encourage residents to donate money to their state governments, then let the governments credit those donations against their state income taxes. Such donations would certainly qualify as charitable donations, which are still fully deductible on federal taxes.
Mr. Stark noted which such programs already existed, albeit in a much more limited form. Several states let residents count donations to private schools as state tax payments under certain circumstances, an initiative which conservatives have promoted as a step toward school vouchers.
Another idea would certainly be for states to partly or completely replace their income taxes with payroll taxes paid by employers, similar to existing taxes for Social Security along with unemployment insurance.
In theory, such a move wouldn’t change after-tax income for either companies or individuals. which would certainly just change where the tax checks were coming via. Companies would certainly reduce workers’ pay by the amount of the payroll tax, along with would certainly be able to deduct the payments on their federal taxes. Because they would certainly never receive the money, workers wouldn’t be taxed on which.
“In effect, which preserves the state income tax deduction,” said Dean Baker, a liberal economist who has been pushing for the plan.
Both ideas — along with others like them — would certainly face logistical hurdles, legal challenges along with, most likely, opposition via Congress along with the federal government. nevertheless they are nonetheless rapidly moving via the realm of academic theory into actual policymaking.
Kevin de León, a Democrat who is usually president pro tem of the California Senate, has announced plans to introduce legislation aimed at reducing the impact of the tax law. He is usually consulting with Mr. Stark, among others, to develop the legislation.
Mr. de León along with various other legislators concede which they are trying to game the system. nevertheless they argue which Congress left them little choice.
“This specific is usually highly unusual tax policymaking,” said Mr. de León, who has announced plans to run for the United States Senate next year. “However, This specific is usually a highly unusual time from the history of This specific country.”
Republicans argue there is usually a much simpler solution for high-tax states: lower their taxes.
Joseph Pennacchio, a Republican state senator in brand new Jersey, said which he opposed limiting the state along with local tax deduction nevertheless which brand new Jersey should focus less on gaming the system along with more on lowering its tax burden. There are signs which may be happening. Mr. Sweeney, the Senate president, said which because of the brand new tax law, he had “pressed the pause button” on a plan to impose a brand new tax on millionaires.
“Maybe people are starting to realize,” Mr. Pennacchio said, “you’ve got to tiptoe when which comes to raising taxes, because which can do more harm than not bad.”
Still, lawmakers via both parties said which would certainly be hard to cut taxes enough to offset the impact of the brand new tax law. For one thing, states like brand new Jersey along with brand new York have high costs of living along with high housing costs, not just high tax rates. Even if their tax rates were the same, far more homeowners in brand new Jersey than in Alabama would certainly hit the $10,000 cap.
nevertheless perhaps more significant, cutting taxes would certainly also mean cutting funding for schools, subway systems, anti-poverty programs along with various other services which residents in those states have come to expect.
“I suppose the rational response for us is usually to lower our taxes,” said Benjamin Barnes, who heads the Connecticut Office of Policy along with Management, “nevertheless we have a public which has shown again along with again which they expect high levels of service.”