Trump Tax Buster: Meet Professor David Kamin

A key part of the new tax bill punishes states with high state and local taxes by limiting deductions to $10,000 per year. Prof. David Kamin (NYU Law School, pictured) has developed a strategy for states such as Illinois, New York, New Jersey, and California to offset this part of the law.

A tax law authority, Prof. Kamin begins with a favorite policy of conservatives. Some states use the tax code to shower benefits on religious schools without crossing the First Amendment boundary that requires separation of church and state.

Here’s how states do this. Say you want to send your child to fill-in-the-blank Religious High School. Instead of paying tuition, if you pay the school a donation the state tax law rewards you—not once but twice. 

First, it gives you a credit on your state tax bill; and second, this allows you to use the federal tax code to made a deduction against your federal income taxes.

Let’s use some numbers to illustrate. 

Okay, your tuition was going to be $10,000; but instead you “donated” $10,000 to the school. Now, the state takes a $1,000 off your final state income tax bill—that’s the credit part. Pause…. What just happened here was a backdoor method of state funding of a religious school. 

But that’s not all. Now, as you turn to your federal taxes, you can count the $10,000 “donation” as a deduction against your federal tax bill. That might reduce your federal tax bill by about $2,500.

Bottom line: This disguised religious-school subsidy takes your $10,000 tuition bill, and—voila!— makes it a $3,500 tax saving if you will simply make a donation in lieu of a tuition payment.

Now here’s Prof. Kamin’s pitch to states with high local taxes (that often support public services, including forms of care and education for developmentally disabled children, to cite one example; or more broadly, Medicaid to an expanded group of low income citizens): After taxpayers exhaust their $10,000 limit of federal income tax deductions, allow taxpayers to make a donation to the state—just like the religious-school parent does above-- and get a tax credit for doing so (this would incentivize these "donations"). 

So, if your total state and local tax bills are, say, $20,000, you can donate $10,000 to the state and local (e.g., county) taxing authorities [the difference between your $10,000 federal amount that can be deducted and the $20,000 you owe in total state and local taxes].

What does that do for you? 

It allows you to deduct your first $10,000 of taxes per the Trump tax bill. Then, just like the conservative state treats the disguised tuition payment as a “donation,” it allows the taxpayer in the liberal state to treat her disguised tax payment as a “donation.” 

The net result: The taxpayer avoids the Trump tax penalty that was intended to punish people in liberal states by limiting deductions to $10,000. These taxpayers get the same bang-for-the-buck in taking a deduction as the religious school “donor” (in other words, the Kamin plan simply substitutes the state for the religious school).