Ever since President Trump signed tax reform in late December, lowering corporate and personal income-tax rates, attention has centered on the efforts of legislators in high-tax places like New York and California to find a way around the new federal provisions. Facing a cap on the ability of taxpayers to deduct their state and local taxes, New York governor Andrew Cuomo has proposedcreating charitable trust funds to which taxpayers could donate for education and health-care services, in exchange for state tax credits. California's state senate has already passed a law permitting similar contributions, though the savings will depend on whether the Internal Revenue Service allows these payments to qualify as charitable donations.
But the real news may turn out to be the way other states are looking to reform their own taxes in order to return to residents any windfall—and more—that state governments gain from the impact of federal tax reform. At least 17 states estimate that taxpayers would have to pay more in state levies as their residents' federal taxes go down, increasing their taxable income. In Georgia, South Carolina, Iowa, and Maine, officials have already begun revamping their tax codes to ensure that federal tax reform doesn't result in higher state taxes. “That's the right thing to do,” Maine governor Paul LePage said in his recent State of the State address.
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