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Contributors
Jon Coupal- Columnist
Jon Coupal
is an attorney and president of the Howard Jarvis Taxpayers
Association -- California's largest taxpayer organization with
offices in Los Angeles and Sacramento. [go to website] [go
to Coupal index]
 Local
Taxes?
More tax gambits…
[Jon Coupal] 12/23/04
It has been said that all taxes are local. They are extracted
from the locality of the taxpayer's wallet.
This is why the reaction to a trial balloon being floated by
some close to the Bush administration is so fascinating.
The president has set tax reform, with an emphasis on simplification,
as a major goal of his second term. This sounds attractive in
principle, but previous efforts have shown that once specifics
are introduced, the resistance to change becomes virtually insurmountable.
For example, eliminating deductions for charitable donations
and mortgage interest are unacceptable to most taxpayers, even
if the proposal was coupled to an overall lowering of the tax
rate.
One proposal at the federal level that has grabbed the public's
attention is the elimination of the deduction for state and local
taxes.
Howls of anguish are
being heard from high tax states like California and New York.
Opponents are accusing the administration of dark
motives, claiming that this is an effort punish "blue" states,
since those that voted for Kerry would be hardest it. While these
claims may be tinged with paranoia, there is little argument
that such a change could provide a windfall for the federal government.
Although the overall objective of such a change could be a general
lowering of tax rates, considering the number of Congressional
Representatives from high tax states and the fact that it is
their high income taxpayers that would be hardest hit, it is
unlikely that this plan will ever become law. But never say never.
Regardless of the outcome, the issue illustrates how state representatives
use existing provisions of the tax code to justify higher taxes
at the state and local level. These taxes, they say, are discounted
because they can be deducted on the federal income tax form.
When Proposition 13 was on the ballot, this was one of the arguments
used by the tax-and-spend crowd to urge its defeat. If Proposition
13 passed, went their reasoning, and the homeowner saved a thousand
dollars in property taxes, this saving would be subject to federal
income tax. So, to save $200 on their federal taxes, property
owners were supposed to reject a savings of $1,000. Yeah, right.
Still, those who favor high taxes persist in their views. Rep.
Robert T. Matsui (D-Sacramento) has expressed concern that a
change in the federal law that would bar deductions could result
in taxpayers, hit with a higher federal tax burden, demanding
reductions in state and local taxes as compensation. Economist
Max B. Sawicky at the liberal Economic Policy Institute agrees.
It's likely that many Californians will strongly object to this
proposed change in federal tax law. Last year, 37% of tax filers
claimed a federal deduction for state and local income taxes
and state taxpayers already pay out $58 billion more to the feds
than we get back in services. However, taxpayers should carefully
examine the motivation of those politicians who claim to represent
their interests. While some will oppose this measure out of genuine
concern for taxpayers, for others it is just a turf war. They
want to maintain the federal tax status quo because it makes
it easier for them to maintain high tax rates at the state and
local level.
As taxpayers observe the debate, they know, no matter how it
turns out, the winner's prize will come out of their pockets. CRO
Jon Coupal
is an attorney and President of the Howard Jarvis Taxpayers
Association.
copyright
2004 Howard Jarvis Taxpayers association
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