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Title : Using state law to create loopholes to escape from the federal tax law.
link : Using state law to create loopholes to escape from the federal tax law.

Using state law to create loopholes to escape from the federal tax law.

"Democrats in High-Tax States Plot to Blunt Impact of New Tax Law" (NYT).

Kirk Stark, a law professor at the University of California, Los Angeles, has suggested that 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 qualify as charitable donations, which are still fully deductible on federal taxes.

Mr. Stark noted that 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 that conservatives have promoted as a step toward school vouchers.

Another idea would be for states to partly or completely replace their income taxes with payroll taxes paid by employers, similar to existing taxes for Social Security and unemployment insurance.

In theory, such a move wouldn’t change after-tax income for either companies or individuals. It would just change where the tax checks were coming from. Companies would reduce workers’ pay by the amount of the payroll tax, and would be able to deduct the payments on their federal taxes. Because they would never receive the money, workers wouldn’t be taxed on it.

“In effect, it preserves the state income tax deduction,” said Dean Baker, a liberal economist who has been pushing for the plan.

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