The Definition Of Serendipity

Serendipity means a “fortunate or happy unplanned coincidence”. We may be seeing an example of that concept in one of the unintended consequences of the recently passed tax bill.

Yesterday the Associated Press reported the following:

In New Jersey and California, top Democratic officials want to let people make charitable contributions to the state instead of paying certain taxes. In Connecticut and New York, officials are exploring a switch from income taxes to new ones on payroll. A few governors have even called for tax cuts.

The ideas are bubbling up as state lawmakers begin their 2018 sessions and assess the effects of the Republican tax overhaul that President Donald Trump signed into law last month. Lawmakers and governors in some states are grappling with how to protect their constituents.

Loosely translated this is what is happening as a result of the fact that states with low state taxes will no longer be subsidizing states with high state taxes. Under the current plan, if your real estate taxes were $20,000 a year, which is not unusual in New York, Connecticut, New Jersey or California, you knew you could deduct them on your federal income tax, so it really wasn’t that important to you. Now those deductions will be limited to $10,000 and you will still have to pay the balance to your state.

No one likes it when their gravy train is cut off.

The article further reports:

This week, New York Gov. Andrew Cuomo used his state-of-the-state speech to pledge to sue over the GOP tax plan, which he called “an assault” by the federal government. A lawsuit would add taxes to the growing list of Trump administration policies that Democratic states have challenged in court.

Other states have not committed to sue, but some leaders have indicated they’ll explore the idea.

“I’m certainly not a constitutional lawyer, but the notion that this is not constitutional is something we want to pursue,” said Phil Murphy, New Jersey’s Democratic governor-elect.

Officials in California and Connecticut also said this week they were considering legal options.

In high-tax states, officials have been focused on protecting taxpayers from the impact of a new $10,000 cap on deductions for paying state and local taxes. In California, Connecticut, Massachusetts, New Jersey and New York, more than one-third of tax filers claim the state and local tax deduction on federal taxes; the average deduction in each state is over $15,000.

The Constitution gives Congress the right to levy taxes. Good luck with your lawsuit.

It is remotely possible that fiscal responsibility may be forced on some of our high-taxed states. When you consider that the Founding Fathers saw each state as a laboratory to experiment with unique ideas, it becomes obvious that some states did better than others in controlling expenses. Those states which controlled expenses have been subsidizing those that spent wildly for years. It is nice that things are changing. Now the governments of those states who have overspent need to change.

Unintended Consequences Of A Bad Law posted an article today about one of the unintended consequences of ObamaCare. The law as it was explained by the Obama Administration states that if a person’s income is less than 400% above the poverty line, they are supposed to get a subsidy for their health insurance. However, there is a glitch in this law that denies that subsidy to most childless single people between the ages of 18 and 34. Unfortunately, this is the group that needs to participate in ObamaCare in order for ObamaCare to work.

The article explains the problem:

The reason for the disparity in subsidies stems from the formula ObamaCare uses to calculate the subsidy amounts. Under the law, people making less than 400% of poverty will only be required to pay a certain percentage of their income toward insurance coverage. Anything above that amount will be paid by taxpayers.

So, for example, someone making $34,470 — or 300% of poverty — would have to pay $3,275 in premiums before ObamaCare subsidies kick in.

But because most young people in this income group will be able to buy insurance in the ObamaCare exchanges for less than $3,275, they won’t get any subsidy help. That was the case in the 14 states that, along with Washington, D.C., had announced their ObamaCare rates when the study was conducted.

The article further reports:

“On balance, insurance in the exchanges will be a much better deal for older and sicker people,” said Sean Parnell, president of Impact Policy Management, who co-authored the study with Hogberg.

And that, the authors note, could lead to an insurance “death spiral,” if the young avoid paying full price for coverage while older, sicker people take advantage of the generous ObamaCare subsidies.

Further evidence that ObamaCare is not yet ready for prime time.

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