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State and local deductions under the new tax law - YouTube
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[10]
so that 2017 Tax Reform Act didn't
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repeal the deduction for state and local
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taxes but it limited it severely and
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whether this limitation this new
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limitation is good tax policy is
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debatable but what it's not debatable is
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the effect of this limitation and the
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fact of it is that Republicans in
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Congress succeeded in hurting Democrats
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where it matters the limitation
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basically takes money away sometimes a
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lot of money away in new taxes from
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Democratic donors the reason it does is
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because the limitation of this deduction
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for state and local taxes matters only
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if you deduct state and local taxes in
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the first place a lot of middle-class
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taxpayers and below take standard
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deductions so they don't care about this
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other deduction for state and local
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taxes and this deduction for state local
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taxes also matters if state and local
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taxes in your state are high and it just
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turns out that almost all states with
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high state and local taxes are blue
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states
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so now wealthy taxpayers in blue states
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are going to pay more in federal taxes
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because they lose this valuable
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deduction that they've had before
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States are not happy about this blue
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states are not happy about this they are
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protesting New York New Jersey and
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Connecticut are planning to sue
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presumably federal government making
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some arguments that this limitation this
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new limitation is illegal presumably
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this will be constitutional arguments
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it's unclear that the lawsuit hasn't
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been filed it's not clear what the
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complaint will say but I am very
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skeptical about the likelihood of
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success of that complaint of that
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lawsuit that however is not the most
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interesting part of that lawsuit because
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the the most interesting part is whether
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this lawsuit will survive the so-called
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motion to dismiss and if it does survive
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there will be discovery where the
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architects of the Republican tax reform
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will be asked under oath why they
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decided to have this change why they
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decided to eliminate deductions for
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state and local taxes and of course
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they're gonna say that they did it to
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raise revenue and that's true it raises
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a lot of revenue but then the question
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of anything else and then it's going to
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be interesting what the answers would be
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so in addition to filing this lawsuit
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many blue states are planning to change
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their tax law to take the sting out of
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this new limitation on deduction and
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what's happening now is is a very public
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and will it will continue to happen is a
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very public exposure to how tax planning
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is done usually in private so there is a
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range of things that states can do some
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things feel like almost nothing will
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change but all of a sudden the deduction
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comes back in a slightly different form
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but it comes back so the good news for
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taxpayers is that almost nothing changes
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economically the bad news though that
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these kinds of reforms on the state at
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the state level are vulnerable
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in federal court where the federal
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government will argue look nothing
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really changed and so this is still same
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deduction that we now just allow that
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Congress now just allows so no no like
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there are other changes that can make
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real economic difference and will be
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much more much more bulletproof if
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federal government litigates however as
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I said they make real economic
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difference so taxpayers will not feel
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like nothing changed so states are now
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considering all these changes it
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happened before and something similar
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when States tried to help their
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taxpayers to reduce their federal taxes
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and it ended up in the Supreme Court
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hard to know but my guess is this may
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end up in the Supreme Court as well so
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the this will remain an issue for some
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years to come so stay tuned
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