California, New York, New Jersey, Maryland, might require workers to accept an immediate pay cut.
A major proposal would shift income taxes to payroll taxes — or from employees who can no longer deduct taxes to employers who still can.
Employers, facing a higher tax bill, would most likely reduce wages. But the state would give employees a wage credit, which would be deductible.
So if an employee makes $75,000 a year, and the employer lowers her salary to $65,000 because it's now paying a new payroll tax, the state would give the employee a wage credit for $10,000. The employee is back where she started (at $75,000) — but now she has her state taxes shielded from federal taxation.
However [existing program] charitable contributions produce an actual charitable benefit, whereas these proposals involve a pure tax swap," said Jared Walczak, senior policy analyst at the Tax Foundation. "The IRS requires that charitable contributions have genuine charitable intent and a charitable outcome."
E.J. McMahon, a conservative economist and founder of the Empire Center for Public Policy, pointed out that any value you receive from a charitable donation is not deductible. He provided an example: If a person at a silent auction bought a vacation that's worth $2,000, but paid $4,000 for it, he could only deduct $2,000 — because the other half was not charity, but rather a benefit he reaped.
The idea of a dollar-for-dollar tax credit, then, would fly in the face of this policy, he said.
Robert Mujica, New York's budget director said, "We're going to draft legislation that can withstand any legal tests".
