It’s Senate Bill 539, by U.S. Senate candidate Kevin de León, a state senator from Los Angeles. The measure would limit the impact on affluent residents of the new $10,000 federal limit on deducting state and local taxes from federal tax returns by sharply increasing an existing tax credit for contributions to a college scholarship program already run by the state.

If SB539 is signed by Brown, families making more than $100,000 – especially homeowners – could potentially save billions of dollars with the new, much higher 75 percent credit. In 2015 – the most recent year for which statistics are available – 6.1 million California tax filers used the state and local tax deduction, with an average of $18,438, according to the Tax Policy Center.

This explains the bipartisan appeal of the measure, which passed the Assembly and Senate with a total of two negative votes – one Republican (state Sen. Jim Nielsen of Fresno) and one Democrat (Assemblyman Jim Frazier of Contra Costa County).

It’s not clear whether Brown will sign the measure. While he called the Republican tax overhaul approved last December “evil in the extreme” at the time it was being considered by Congress, he’s been reported to be skeptical that any state tax avoidance effort would be accepted by the Internal Revenue Service.

That’s the impression the IRS has sought to create since the state and local tax deduction was limited. And last month, the IRS proposed a 15 percent cap on deductibility of certain gifts, including to state programs like the one that would benefit from SB539.

IRS rule could reduce deductions for private tuition

The proposed IRS rule is so broad, however, that Gannett News Service reported on Aug. 24 that it could affect laws allowing for state and local tax credits for charitable contributions in 34 states. In several Republican-dominated states, these credits are available for private school tuition.

This generated a sharp reaction from EdChoice, an Indianapolis-based national nonprofit organization that’s devoted to encouraging alternatives to traditional public schools.

“The IRS chose to adopt a new rule after New York and a few other states who overtax their citizens at the state and local level had the audacity to create federal tax-dodging schemes,” EdChoice told Gannett. “These tax-dodging schemes do not compare in intent or purpose to the charitable programs created years ago to help children access K-12 education where they fit in and can learn.”

Treasury Secretary Steven Mnuchin, however, disputed the idea that the proposed IRS rule would have a heavy impact on donations to private schools and to school choice advocates.

In July, four states – New York, New Jersey, Connecticut and Maryland – sued the federal government over the deduction limit, saying it amounts to unconstitutional “double taxation.” The Tax Foundation says those states and California are the five where taxpayers will face the biggest hit.

But most tax experts think the lawsuit is unlikely to win, given the long-established primacy of Congress in setting tax laws and of the IRS in interpreting them.

California has already sued the Trump administration more than 50 times – but not, so far at least, over the tax deduction change.

Democratic state lawmakers’ interest in pursuing an unprecedented plan to minimize the hit that California’s high-income residents face because of the federal tax overhaul’s $10,000 cap on deductibility of state and local taxes may be losing momentum – undermined by strong warnings from Treasury Secretary Steven Mnuchin, who oversees the Internal Revenue Service, and by a new analysis that says the IRS could easily squelch the maneuver.

Senate President Pro Tem Kevin de Leon, D-Los Angeles, pictured, introduced Senate Bill 227 early this month. It would allow the estimated 6 million Californians who itemize their federal income taxes to effectively continue to write off state and local tax deductions in excess of $10,000 by allowing them to pay their state taxes to a state charitable foundation, the California Excellence Fund.

Tax experts note that states have long allowed tax deductions for charitable donations and say de Leon’s ploy is protected by the fact that tax laws are traditionally subject to stricter interpretation than most federal laws because of concerns that a rogue IRS could target individuals or companies it didn’t like.

Democratic lawmakers embraced de Leon’s proposal, saying the move would allow the 6 million state taxpayers who itemize deductions to save an average of more than $8,000 a year.

Washington Post: California shows how to take on Trump

But after Washington Post coverage of the legislation asserted it could create a “national boilerplate for skirting Trump tax changes,” the Trump administration took notice of what California was up to.

Politico reported that Mnuchin called the proposal in California and similar proposals in other high-tax states “ridiculous.” Mnuchin emphasized that the IRS was allowed to decide what qualifies as an IRS-recognized charity.

“Let me just say again from a Treasury standpoint and IRS, I don’t want to speculate on what people will do, but I think it’s one of the more ridiculous comments to think you can take a real estate tax that you are required to make and dress that up as a charitable contribution,” Mnuchin told reporters at the White House. He described the ploy as an obvious attempt by states “to evade the law.”

Mnuchin’s comments were backed up in a report by the Washington, D.C.-based Tax Foundation.

“This proposal, while interesting, is fairly obviously in violation of existing law and jurisprudence,” wrote veteran tax analyst Jared Walczak. “Just because the IRS has not consistently cracked down on some minor efforts here and there does not mean it would turn a blind eye to a concerted effort to contravene the tax code by providing a contribution in lieu of taxes program.”

Walczak warned state lawmakers that when it comes to de Leon’s Senate Bill 227, the IRS could readily thwart it under precedents that allow it to block deductions for charitable donations if the agency concluded there was no “charitable intent” to the donations.

Given that de Leon and other backers of the bill have openly described it as being designed to reduce Californians’ payments to the U.S. Treasury, lawyers defending the bill if it became law and was rejected by the IRS would face a difficult task: making a plausible case that a “charitable donation” that was undertaken with the goal of reducing an individual’s or family’s tax obligations meets the requirements set by the IRS for allowable charitable deductions.

The latest IRS overview of which deductions are allowed – Publication 526, released in 2016 under the Obama administration – doesn’t seem to allow such self-serving deductions.

It says that for a donation to qualify for a deduction, it must be “made without getting, or expecting to get, anything of equal value. … Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals.”

Harris “has a fight on her hands trying to get the brothers’ Americans for Prosperity Foundation to give her access to the same confidential data it already provides to the Internal Revenue Service,” Bloomberg Politics reported. That organization has labored in court to maintain control over information about its contributors, arguing that they and it face routine threats of violence.

“Grotesque threats have been leveled against known associates of the foundation, ranging from threats to kill or maim to threats to firebomb buildings,” the Foundation alleged, as Courthouse News reported. “More mundane threats abound too, including boycotts, firings and public shaming, all of which are now demonstrated components of the playbook of the foundation’s more extreme opponents.”

Pressed on the prospect of public disclosure by judges at a recent hearing in federal appeals court, “Deputy Attorney General Alexandra Gordon told the judges that new regulations to prohibit such disclosure are in the making, though she didn’t know when they would be enacted,” the site added. Gordon waved away claims that Foundation contributors could be put in peril by the disclosure of their information. “We have basically some anecdotal evidence of threats, mostly arising from the founders of this foundation, the Koch brothers’ very public presence and very public events held by the foundation,” she said, according to Courthouse News Service. “That has nothing to do with whether this type of disclosure requirement is actually going to lead to harm.”

The legal battle between the Kochs and the state Attorney General began in December 2014, when Americans for Prosperity sued Harris for violating its First Amendment rights to free speech. Although California law requires all charitable organizations to register with the state and furnish copies of their public IRS filings, as the Los Angeles Times then noted, the so-called “Schedule B” filing, which lists the names and addresses of donors giving over $5,000 each tax year, is “kept confidential and not available to the public.”

While Americans for Prosperity “said they have been registered with the state since 2001 and had never before been asked for its list of donors,” the Times reported, a Harris spokesman said the Foundation “has been out of compliance with the law for a number of years” and “did not receive a communication previously from our office for one simple reason: the section responsible for enforcement has been chronically underfunded for years.”

By this year, however, the Kochs had gained the upper hand in court. This February, U.S. District Judge Manuel Real blocked Harris from pursuing the list “until the legality of the request has been resolved,” as Bloomberg Business observed, citing “a separate case in which the U.S. Court of Appeals in San Francisco halted the attorney general from enforcing the demand on the Center for Competitive Politics while that case was before that court.”

“Real rejected Harris’s argument that her office won’t publicly disclose the donor information, saying that California doesn’t have regulation preventing such disclosure and that, as such, it was left to the attorney general’s discretion whether to make it public. The judge agreed with the foundation that the attorney general’s office won’t be harmed by an injunction because it hadn’t had the donor information for the past decade.”

Whatever the outcome of the case, Harris stood to gain politically from putting the heat on Americans for Prosperity and the Kochs, who are reviled by Democrats as big-money GOP puppet masters. Of late, Harris has had to weather criticism of her own campaign spending, “using her campaign account to fund stays in upscale hotels and first-class airfares during her nearly five-year tenure as state attorney general,” as the Hill recently reported. “A review by The Hill of California campaign finance records reveals that Harris’s expenditures follow a pattern: The Democratic candidate regularly charges thousands of dollars in luxury travel and hotels to her campaign.”

Data acquired illegally, such as Social Security information, date of birth or street address, could be used to clear the IRS’ “multi-step authentication process,” rendering most of those safety precautions useless. With this data, the IRS said, criminals were able to file fraudulent tax refunds.

According to the statement:

“The matter is under review by the Treasury Inspector General for Tax Administration as well as the IRS’ Criminal Investigation unit, and the ‘Get Transcript’ application has been shut down temporarily.

In addition to disabling the “Get Transcript” application, the IRS has taken the below steps:

• “Sending a letter to all of the approximately 200,000 taxpayers whose accounts had attempted unauthorized accesses, notifying them that third parties appear to have had access to taxpayer Social Security numbers and additional personal financial information from a non-IRS source before attempting to access the IRS transcript application. Although half of this group did not actually have their transcript account accessed because the third parties failed the authentication tests, the IRS is still taking an additional protective step to alert taxpayers. That’s because malicious actors acquired sensitive financial information from a source outside the IRS about these households that led to the attempts to access the transcript application.
• “Offering free credit monitoring for the approximately 100,000 taxpayers whose Get Transcript accounts were accessed to ensure this information isn’t being used through other financial avenues. Taxpayers will receive specific instructions so they can sign up for the credit monitoring. The IRS emphasizes these outreach letters will not request any personal identification information from taxpayers. In addition, the IRS is marking the underlying taxpayer accounts on our core processing system to flag for potential identity theft to protect taxpayers going forward — both right now and in 2016.”

SACRAMENTO, Calif. — Covered California is offering a special enrollment opportunity for consumers who did not know or understand there was a tax penalty for being uninsured in 2014 or who learned they may face a penalty for 2015.

“For the first time, health care and taxes now are linked arm in arm,” Covered California Executive Director Peter V. Lee said. “The law requires everyone to be insured, and if you’re not, you may face a significant financial penalty when you file your taxes this year.”

From Feb. 23 until April 30, 2015, consumers are eligible to apply for health coverage during special enrollment by attesting that they did not realize there was a tax penalty. To attest to this fact, they can select “Informed of Tax Penalty Risk” when filling out an application at CoveredCA.com.

The new deadline also comes two weeks after the April 15 deadline for filing income tax forms, and paying any back taxes, to the IRS. Covered CA’s announcement recognizes that this will be a big spur to action:

The new tax penalty for being uninsured — known as the “shared responsibility payment” — motivated many consumers to purchase insurance this year during the Nov. 15-Feb. 15 open-enrollment period via Covered California. Unfortunately, many people who are supposed to purchase insurance may be unaware of the penalty and surprised when they go to their tax preparation professional for help. …

For the first time, consumers who are filing their taxes this year may be paying a penalty for not having health insurance. And the penalty for going without insurance in 2015 will go up significantly: Those who can afford insurance but choose not to buy it will be subject to paying $325 per adult in a household or 2 percent of their income, whichever is greater.

Veterans may be exempt

The Covered CA announcement does not mention it, but there is an exemption for U.S. military veterans. The federal Veterans Administration website advises:

You do not have to pay a fee if you have coverage that meets a minimum standard (called “minimum essential coverage”). VA is required by law to notify the IRS of veterans’ enrollment status in the VA health care system in 2014. Veterans who are not enrolled in the VA health care system and who do not have qualifying medical insurance, unless given an exemption, will be charged a fee beginning on their 2014 federal income tax return, which most people will file in the spring of 2015. The fee is prorated based on the amount of time in the calendar year the Veteran does not have medical insurance that meets minimal essential coverage standards.

Explanations of VA medical benefits, and how to sign up for them, are here.

“the Los Angeles Unified School District’s student information system, which has cost more than $130 million, has become a technological disaster. The system made its debut this semester and promptly overloaded the district’s database servers, requiring an emergency re-engineering. In the days and weeks that followed, many teachers were unable to enter grades or attendance or even figure out which students were enrolled in class.”

Sure, private-sector companies have computer problems, such as the recent spate of data stealing at Target, etc. But the problems are far fewer than in government, and more quickly fixed. And in any case, if a company messes up your computer records, you can switch to another company. But government always is with us; there’s no competition.

Some other notable government computer glitches:

• In July, the IRS claimed massive, continuous “computer clashes” prevented it from handing over to Congress emails from former head Lois Lerner and others involved in the scandal over IRS attacks on conservative groups.
• A year ago, Obamacare’s computers crashed big time.
• In Sept. 2013, the California Employment Development Department admitted computer crashes delayed checks to 185,000 unemployed people.
• In Feb. 2013, the California DMV’s $208 million tech overhaul was canceled because it didn’t work.

So against this backdrop, what does the L.A. Times’ Chris Megerian come up with for a big overview of how California is functioning? A sunny story with this headline: “California’s economic stability leaves Gov. Brown a new challenge.” Its message? This guy is a genius! If only he could get more support in the Legislature!

“Gray Davis, a fellow Democrat, was recalled by voters as state finances imploded following an energy crisis. Republican Arnold Schwarzenegger limped out of office with rock-bottom poll numbers, leaving a pile of debt.

“But on Brown’s watch, deficits have become surpluses, helped along by tax hikes the governor persuaded voters to approve. More money is being pumped into schools.

“University tuition has stabilized.

“Budget standoffs that once dragged through the summer are now wrapped up by the June deadline, lending the Capitol a new sense of orderliness. And on Wednesday, the governor called a special legislative session to prod lawmakers to pass his plan for saving money and paying off debt.

“That record, which will be a major part of Brown’s reelection campaign, is due partly to good fortune. California is benefiting from a nationwide economic recovery that has helped flood the state with revenue. Brown is also blessed with a Capitol dominated by fellow Democrats and a 2010 rule change that lowered the number of votes needed to pass a spending plan.”

A worship of process, an indifference to the real world

So if you read this story in a vacuum, you would believe that California had a healthy economy. That’s just not true.

You would also believe California has budget surpluses. That’s just not true. California has at least $200 billion in unfunded pension and health care oblgations to retired employees. The governor declines to ask the Legislature to provide even close to the actuarial minimum to fund these obligations. How does he finesse official budget documents to sustain the myth that the state has budget surpluses? With Enron-style accounting.

What’s going on here? How can the state with the worst poverty rate in the nation and staggering debt be depicted as nirvana?

Contrary to some libertarians and conservatives in California, I really don’t think it’s the West Coast version of Obamaphilia, where gigantic screw-ups and scandals are ignored because of idolatry and partisanship. (Do you really think the IRS hassling and impeding hundreds of conservative nonprofits during a presidential election year would be covered as it’s been if Bush were sill president and the nonprofits were liberal?)

Mainly, I think it’s a reflection of how stunned the Sacramento press corps was by the post-Pete Wilson dysfunction — the decade preceding Brown’s return to the governor’s office in which the Legislature couldn’t even pass a budget on time year after year after year.

Now that Brown, aided by Proposition 25, is able to get budgets passed, the absence of this chaos seems miraculous to the Sacramento media.

RIP, skeptical journalism. At least in Sacramento.

But instead of just giving the governor credit for restoring order to the budget process, they give him much broader credit for California’s rebound and its “economic stability.”

But what rebound? Nearly one-quarter of the state is in poverty, a much worse rate than West Virginia and Mississippi.

And what “economic stability”? If a household ignored its gigantic credit-card debts, mom and dad could pretend they were thriving. But are they really thriving?

Of course not.

In our idealized “All the President’s Men” conception of journalism, we believe that journalists hunt for discrepancies between what our leaders tell us and what is the truth. But in Sacramento, our journalists do no such thing. Instead, they put on the blinders, and reflect the view expressed in another classic 1970s movie.

Remain calm! All is well!

It turns out that part is not true. Only conservative groups — that is, opponents of President Obama, who runs the IRS —  were targeted. The Daily Caller reported:

IRS agents testified before Congress that the agency’s political targeting did not apply to progressive groups as Democrats and the media have claimed, according to a bombshell new staff report prepared by the House Oversight Committee chairman, Rep. Darrell Issa.

IRS agents testified before Oversight that ACORN groups were scrutinized because the agency thought they were old organizations applying as new ones. Emerge America was scrutinized for potential “improper private benefit.” No evidence exists that the IRS requested additional information from any Occupy Wall Street group.

“Only seven applications in the IRS backlog contained the word ‘progressive,’ all of which were then approved by the IRS, while Tea Party groups received unprecedented review and experienced years-long delays. While some liberal-oriented groups were singled out for scrutiny, evidence shows it was due to non-political reasons,” according to the Oversight staff report, which was obtained by The Daily Caller.

“[T]he Administration and congressional Democrats have seized upon the notion that the IRS’s targeting was not just limited to conservative applicants,” the report states. “These Democratic claims are flat-out wrong and have no basis in any thorough examination of the facts.  Yet, the Administration’s chief defenders continue to make these assertions in a concerted effort to deflect and distract from the truth about the IRS’s targeting of tax-exempt applicants.”

“[T]here is simply no evidence that any liberal or progressive group received enhanced scrutiny because its application reflected the organization’s political views,” the report stated.

This is more evidence that America is sliding downward into a Third World, one-party state.