SPRINGFIELD – State Sen. Jim Oberweis (R-Sugar Grove) said he is disappointed that he did not have an opportunity to warn his fellow lawmakers against a tax-cut bill they overwhelmingly approved May 24, despite warnings by the Internal Revenue Service.
The Senate voted 54-1-1 to pass House Bill 4237, a proposed workaround of the newly enacted State and Local Taxes (SALT) cap of $10,000 in the federal tax code.
“This is very short-sighted legislation that was hard to vote against because everybody likes tax decreases. But it is a very bad idea because the recent federal tax reduction measure was absolutely critical in keeping corporate headquarters in the United States instead of them moving to other countries. The federal tax bill also lowered tax rates for most people in the US,” Oberweis said. “In return for those lower taxes, and to help offset the reduction in revenues, the new law put a $10,000 annual cap on state and local tax deductions. It also simplified tax returns to a certain degree since many of us will no longer have to save certain receipts or do all the extra computations.”
Oberweis said the federal tax bill also may encourage high-tax states like New York, California, Connecticut and Illinois to control runaway spending since those state and local taxes over $10,000 per person are no longer deductible on federal tax returns.
House Bill 4237 requires counties to first authorize the ability of local units to establish charitable funds by ordinance or resolution. Then, local units (only school districts, municipalities and counties) would be able to establish individual charitable funds by ordinance or resolution. The local units’ charitable funds would allow donations and those donations would provide a similar state tax credit. “It is a trick to get around the $10,000 federal limitation but, of course, the IRS will not allow it to work,” Oberweis said.
The Internal Revenue Service has warned states looking to get around the deduction caps – New York, New Jersey, Connecticut and now Illinois – that they could face new regulations.
“There is no way the federal government is going to allow states to pull a fast one like that, to find a tricky way around the deduction limits,” Oberweis said. “Trying to get around the IRS is not a good idea. This is a ‘lose-lose’ situation.”
If somehow a court upheld the Illinois plan (unlikely), Oberweis said the federal government could come back and limit all deductions to $10,000, which would be bad news for charities, as charitable contributions could be negatively impacted.
House Bill 4237 now moves to the House for further consideration.
“It is my hope that our State Representatives will figure this out before voting on it,” Oberweis said.