Getting Around the State and Local Tax Deduction Limit

Abstract

The 2017 tax bill put a cap of $10,000 on the deduction for state and local taxes, while retaining existing rules for charitable donations. It has been suggested that states could enact 100% state tax credits for people who donate money to the state, so taxpayers could donate instead of pay taxes and thus still be able to deduct as much as they want on their federal tax returns. I disagree, and argue that under the past and present Tax Code these "donations" would and should be treated as quid pro quo items, since the recipient transfers something of value to the donor.

Keywords: State and Local Taxes, Deductibility, Donations, Charity

JEL Classification: H21, H26, K34