What The New Tax Law Means For California

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To help offset the cost of tax cuts, the new federal tax overhaul puts some big politically left-leaning states, like New York and California, on the hook for a greater share of federal revenue. They don't want to pay. Capital Public Radio's Ben Bradford reports.

BEN BRADFORD, BYLINE: The new law no longer allows taxpayers to write off more than $10,000 of state and local income and property taxes from their federal returns or, as New York Governor Andrew Cuomo put it in his annual State of the State address Wednesday...

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ANDREW CUOMO: As Washington has shot an arrow aimed at New York state's economic heart, the best plan is to get out of the way before it hits.

BRADFORD: New York along with California, Massachusetts and other large blue states have some of the highest taxes in property prices, so they'll feel the brunt of the loss of state and local tax deductions, also called SALT deductions. Democrats like Cuomo and California Assembly Budget Chairman Phil Ting say Republicans in Washington targeted their states.

PHIL TING: They went out of their way to really penalize our taxpayers. So we're really looking at ways as how we can mitigate that for our tax base, and we're looking at a variety of proposals.

BRADFORD: Some that might sound pretty zany - Cuomo says New York is looking to shift from income taxes to a new payroll tax, which businesses could still deduct but would probably require employees to take lower pre-tax salaries. In California, state Senate leader Kevin de Leon has a proposal for taxpayers to give to a new state-run charitable fund in exchange for a refund on state income taxes. New Jersey Governor-elect Phil Murphy tweeted yesterday that several towns will adopt a similar approach for their local taxes. California Republican Senate leader Patricia Bates says Democrats are looking for any reason to clash with the Trump administration.

PATRICIA BATES: That has certainly been the M.O. for the last year that we've been up here - since President Trump was elected. It's not the best way to go.

BRADFORD: Now, some of the rhetoric on this issue might have you thinking the loss of SALT deductions would hit every man, woman and child right in the tax return. But only about a third of filers claim SALT deductions. They're largely higher-income households, and the new tax law benefits them in other ways. Frank Sammartino of the non-partisan Tax Policy Center says most of those people will still pay less overall next year.

FRANK SAMMARTINO: It's just that relative to someone in a low-tax state, their tax cut might be smaller.

BRADFORD: And that's the real fear for leaders of high-cost states. With the loss of the SALT deduction, a state like California is now even more costly for higher-income taxpayers in comparison to a bordering state, like Nevada, which has no income tax. Some California Republicans are weighing whether they would support Democratic proposals to avoid the hit. State Senator John Moorlach doesn't rule it out.

JOHN MOORLACH: So we're going to benefit those that we really need to keep here because if we lose any of our top 1 percent, we lose a portion of about 50 percent of our personal income taxes.

BRADFORD: Moorlach's a former accountant. And his main concern is that the California bill is too cute.

MOORLACH: I just wonder if it's really something that should be pursued because it will be squashed.

BRADFORD: States are considering one other tactic to fight the loss of the SALT deduction, one that brought New York Governor Cuomo a long ovation in his State of the State speech - sue it as double taxation.

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CUOMO: We believe it is illegal, and we will challenge it in court as unconstitutional.

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BRADFORD: New Jersey has also threatened a lawsuit, while California's attorney general says he's reviewing legal options.

For NPR News, I'm Ben Bradford in Sacramento. Transcript provided by NPR, Copyright NPR.