IRS nixes California’s federal tax dodge scheme. Will a significant number of affluent state residents feel moved to move?

The San Jose Mercury News reports:

When President Donald Trump signed an overhaul of the federal tax system six months ago, there was much complaining from politicians in California, New York and other high-taxing – and politically blue – states.

They particularly disliked a new $10,000 limit on deductibility of state and local taxes because it would make their taxpayers, particularly the most affluent, feel the full financial effects of high state taxes.

They feared that those highly impacted taxpayers would find ways to reduce or eliminate their state tax liabilities since they could no longer write them off on federal tax returns, and that would cut into state revenue streams.

The potential impact would be especially heavy in California because of the state’s lopsided dependence on its highest-income residents. The top 1 percent of California taxpayers account for nearly half of the state’s income tax revenues and therefore about a third of its general fund budget.

Gov. Jerry Brown even worried aloud that, faced with much-higher tax burdens, the state’s wealthy would be tempted to move their official residences to low- or no-tax states such as neighboring Nevada.

California politicians saw it as a sneak attack by Republicans on blue states and vowed to counter it with some clever bookkeeping.

While deductibility of state and local taxes was being severely curtailed, they said, the tax overhaul left charitable contributions untouched, so they could give taxpayers an option of making tax-deductible donations to the state in lieu of taxes.

We haven’t heard much about that scheme of late, for good reason. Last month, the Internal Revenue Service issued a warning that “federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law.”

The struggles of Blue America.