Under the Tax Cuts and Jobs Act passed in 2017, wealthy residents in states such as New York and California face sizable increases in their federal tax bills because of a $10,000 cap on state and local tax deductions they can make on their federal returns. Democratic lawmakers allege the so-called SALT-cap unfairly targets left-leaning states.
In response, a few states came up with ways to circumvent the cap, modeled off of tax-credit scholarship programs, said Carl Davis, the research director at the left-leaning Institute on Taxation and Economic Policy. …
“These taxpayers want to look like philanthropists when they’re not,” said Davis. “The IRS is saying, we don’t care who you are donating to, if you get your money back, you get your money back, and you can’t count it as a charitable donation.”
Many tax-credit scholarship programs are so generous—sometimes offering a dollar-for-dollar tax-credit—that donors could actually make money off of their donation, if they claimed the federal deduction on top of the tax credit.
Davis said this is the case in 12 of the 18 states that have created tax-credit scholarships. Some states such as Florida and Illinois already prevent donors from claiming both state tax credits and federal charitable deductions on the same donations, he said. Read more