California’s tax-avoidance scheme for the rich

Remember the “Seinfeld” non-holiday called “Festivus?” In the episode, character George Costanza gives his work colleagues gift cards with donations in their names to a fake charity called “The Human Fund.”

Well, California’s liberal-dominated legislature is proposing its own fake charity. It’s called the “California Excellence Fund.” Since no Festivus celebration is complete without an unadorned aluminum pole, I ask that you gather around, prepare for the “feats of strength,” and allow me to “air grievances.”

One of the great aspects of the Tax Cuts and Jobs Act signed into law by President Trump last month is the $10,000 cap on the federal deduction for state and local taxes (SALT). California, arguably the most liberal state in the country, currently has the nation’s highest base sales tax rate (7.25 percent) and the highest top marginal income tax rate (13.3 percent). The higher the tax rates, the more taxpayers can deduct on their federal returns. As a result, states like California benefit financially at the federal government’s expense. Portions of the new tax law were designed to end that.

{mosads}According to the IRS, California’s 71,000 taxpayers with $1 million or more in taxable income deducted on average $462,500 in 2015. Middle-class taxpayers earning between $50,000 and $100,000 deducted on average $6,940 during the same period. Given that the new law increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 (compared to $6,500, $9,550, and $13,000 respectively under previous law), few middle class families will be affected by the $10,000 cap on SALT deductions.

The hypocrisy of California’s liberal dominated legislature is mind numbing. The foundation of liberalism is higher taxes. How many times have you heard a Democrat claim “the rich need to pay their fair share?” One would think they got their wish with the enactment of the new tax law.

For several months, Senate Minority Leader Chuck Schumer (D-N.Y.) and House Minority Leader Nancy Pelosi (D-Calif.), along with every single Congressional Democrat they represent (not one voted in favor of the tax cuts bill), complained the new tax law is a “giveaway to the rich.” But the elimination of the SALT deduction does the opposite. It takes away from the rich and puts more of their money into the federal government’s coffers.

In an effort to end what he considers an overreach by the federal government to collect more in taxes from the Golden State’s highest earners, California Senate President Kevin de Leon is proposing legislation that would help California’s wealthiest avoid higher tax payments. His answer? The California Excellence Fund. Mr. de Leon wants to designate the fund as a charity, which would allow California’s wealthiest to write off their state taxes as a charitable contribution. Wondering which charitable entities will be the recipients of these “donations?” Look no further than California’s general fund, the money from which will be appropriated by the state legislature. Get the picture?

What’s the real purpose behind this sham charitable fund? The new top federal tax rate of 37 percent combined with California’s top state tax rate of 13.3 percent means California’s wealthiest will pay 50.3 percent of their income in taxes. According to an April 2017 report by the Orange County Register, since 2010 California has seen a net outflow of $36 billion in income. Placating the rich by trying to help them avoid — yes, avoid — paying more in federal taxes is California’s way of keeping their income in-state rather than watching it leave for lower-income states.

What about California businesses? According to a recent study conducted by Joseph Vranich, a site selection consultant and president of Irvine, California-based Spectrum Location Solutions, roughly 9,000 California businesses have moved their headquarters or diverted projects to out-of-state locations during the past seven years in an effort to avoid higher taxes and increased regulations.

The exodus of businesses could increase even further if a new bill put forth by California Assemblymen Kevin McCarty of Sacramento and Phil Ting of San Francisco, both Democrats, is passed. Assembly Constitutional Amendment 22 would require a surcharge for California businesses taking in more than $1 million, and would effectively take away half of the federal tax cut that companies in the Golden State receive. McCarty and Ting want to see the additional tax revenue distributed to programs benefiting low-income and middle-income families.

California’s Pelosi, along with Senators Schumer, Elizabeth Warren (D-Mass), and Bernie Sanders (I-Vt.), never seem to miss an opportunity to tell the uninformed masses that the Tax Cuts and Jobs Act is a bad deal for America. Their silence and hypocrisy regarding California’s legislative tax policy and its effect on wealthy earners and businesses can only be described as a Festivus miracle!

As “Seinfeld’s” Newman would say, “Oh the humanity!”

Keith Rosenkranz is a former U.S. Air Force F-16 fighter pilot and combat veteran of the 1991 Gulf War. He is the author of the book “Vipers In The Storm.”