http://www.latimes.com/business/hiltzik/la-fi-hiltzik-tax-bill-california-20171214-story.html
......Limiting the SALT deduction could affect as many as 6 million Californians—one of every three taxpaying households in the state, according to Michael Cohen, director of the state Department of Finance. The average deduction for property taxes is about $6,000, he has told the state congressional delegation, and the separate deduction for state and local income taxes comes to nearly $16,000 per return.
One option that could be considered by the Legislature would be to redefine state and local taxes as charitable contributions, which remain fully deductible under the GOP tax proposals. The idea isn’t as implausible as it seems: The Internal Revenue Service and federal courts have ruled that government entities can count as charities for the purpose of the charitable deduction, even when the donor receives a full state or local tax credit in return.
Indeed, legislators in Sacramento already are working on a plan to give taxpayers the option of making charitable deductions to state government and taking a tax credit.
California ranks fourth among states in the share of income claimed as a deduction for state and local taxes, although the amount claimed by its taxpayers ranks first in the nation. (Tax Foundation)
Up to now, the maneuver hasn’t been very important except for high-income taxpayers subject to the federal alternative minimum tax, which disallows the deduction for state and local taxes but allows it for charitable contributions. Fewer than 5% of California taxpayers have been subject to the federal AMT, almost all of them with incomes higher than $200,000.
In a 2013 paper, Kirk J. Stark of UCLA Law School and Phillip Blackman, now of Ithaca College, offered a “thought experiment” in which California established a “state charitable contribution fund” aimed at covering general fund expenditures while offering donors a dollar-for-dollar credit against state taxes. The state would receive the same revenue, but the taxpayer exposed to the AMT would retain the deduction for money voluntarily handed over to the state.
“From the state’s perspective,” Stark and Blackman wrote, “that should be simply an accounting maneuver”; for the taxpayer, it’s money in the bank.
California and other states already have similar systems in place, Stark told me. California’s college access fund grants a 50% state tax credit for contributions to the Cal Grants program, which aids low-income college students. The program, which this year was extended through 2023, hasn’t been especially popular—although a maximum of $500 million in credits is available each year, only $5.4 million was claimed in 2016, the latest year available. That’s probably because the 50% tax credit isn’t very alluring, and only AMT taxpayers would find the credit to be of any use, Stark says.