No serious economist believed that former President Donald Trump’s 2017 tax law would pay for itself. On the contrary, that buffet of tax cuts will explode deficits by almost $2 trillion over 11 years, according to Congressional Budget Office estimates.
Though the benefits went overwhelmingly to the highest-income Americans, red-state Republicans cleverly added an item that purported to raise some taxes on rich people. But not so much their rich people. It primarily targets those in high-tax, high-income blue states. We speak of the $10,000 cap on the state and local tax deduction, or SALT, designed to drain revenues from the likes of California, New York, New Jersey and Massachusetts.
It’s sad but expected that naive progressives — think Reps. Pete Aguilar of California and Alexandria Ocasio-Cortez of New York — would fall for this attack on their own constituents’ tax bases. That the supposedly sophisticated minds at The Washington Post and The New York Times would also portray efforts to restore the deduction simply as a tax cut for the rich is astounding.
There should be no cap on this deduction, which lets people subtract what they paid in state and local taxes from federal taxable income. However, a possible compromise among House Democrats to raise the SALT deduction to $72,500 would represent genuine progress.
Curbing the deduction forces Americans to pay taxes on income that’s already gone to paying taxes. But it’s more diabolical than that. It acts as an incentive for upper-income Americans to move to states with regressive tax laws and meager social safety nets — while at the same time degrading the tax bases of the very states that maintain progressive tax policies.
The reality, furthermore, is that the SALT deduction is used by decidedly middle-class people in high-cost-of-living areas such as Long Island. A cop married to a nurse in Levittown could easily report over $160,000 in combined income while also paying over $9,000 in property taxes.
“Folks have been moving away in droves since our state and local tax deduction was gutted,” said Rep. Josh Gottheimer, a New Jersey Democrat.
The top marginal individual income tax rate is 13.3% in California and 10.75% in New Jersey. There is no state income tax in Florida or Texas. For their revenues, those states rely far more on sales taxes targeting lower-income people. What sane progressive would want to degrade the tax base off which they pay for education and health care?
As for conservatives who lecture us on the need to pass power from the federal government to the states and localities, how can they justify stripping those jurisdictions of their ability to raise revenues? By the way, local taxes are the way communities actually fund their police.
For the simpletons who think that any tax hike that hits any rich person is fair, consider this ridiculous scenario: Imagine a new tax levied only on high-paid gastroenterologists. You may ask: What about neurosurgeons and hedge fund managers? Good question.
It may be reasonable to raise federal taxes on the richest Americans. But a tax increase on the $800,000-a-year executive in Florida or Texas should be the same as the tax increase on the $800,000-a-year executive in California or New Jersey.
The Democratic House had earlier passed a repeal of the SALT cap. Then-Senate Majority Leader Mitch McConnell wouldn’t even consider it. After all, why would a Kentucky Republican want to challenge a tax law that milks money from blue states?
With Democrats now nominally in charge, restoring at least some of the deduction is imperative. Smart liberals understand this. May a lightbulb illuminate the stakes for the other liberals. The SALT deduction serves their progressive goals.