Monday, September 20, 2021

Democrats’ SALT Bailout a Gift to the Rich, Blue States

For a party that purportedly wants to “tax the rich,” Democrats sure have a funny way of showing it.

Bloomberg reported on Friday that a potential repeal of the cap for state and local taxes—the SALT cap, to use Washington nomenclature—would erase most of the tax increases included in the House’s version of the $3.5 trillion spending bill being considered by Congress. In some cases, relatively affluent families could actually see a tax cut.

It’s all part of Democrats’ scam to bail out blue states (again), and the union organizations that dominate same. Lawmakers in these blue states—California liberals like House Speaker Nancy Pelosi (D-CA)—want working-class families in red states like Florida and Texas to subsidize residents making $200,000, $400,000, or more in places like New York and New Jersey.

Part of 2017 Tax Bill

The tax relief package that passed under President Trump capped the federal deduction for state and local taxes paid at $10,000, an amount not indexed for inflation in future years. For many residents of red states, which may not have an income tax and keep property taxes relatively low, their state and local taxes paid remain below $10,000, meaning the cap had no effect on their tax situation.

The SALT deduction also only applies to taxpayers who itemize their deduction. Given that the doubling of the standard deduction in the 2017 bill sharply reduced the number of people who itemized, that factor also reduced its impact, particularly for households of modest incomes.

But in states with high property taxes—read: New York, New Jersey, and California—and states with high income taxes—read: New York, New Jersey, and California—capping total SALT deductions at $10,000 per year could lead to a large increase in some households’ federal taxes.

Consider a family in New York City paying $50,000 per year combined in property taxes, city taxes, and state taxes—a not uncommon occurrence, given high salaries in the area and a top marginal tax rate (both state and city) of 14.8 percent. Limiting the family’s SALT deduction to $10,000 meant that household suddenly saw its taxable income rise by $40,000. At a top federal marginal rate of 37 percent, the family saw its federal tax bill increase by $14,800—a tax increase of more than $1,200 per month for the “privilege” of living in New York.

Blue Staters Want a Bailout

Little wonder that former Gov. Andrew Cuomo (D-NY) spent the better part of the last four years complaining about the SALT cap. At various occasions he said the cap represented “an all-out direct attack on New York’s future,” a “gross injustice,” and “a declaration of an economic civil war between Democratic states and Republican states.”

It doesn’t take much to figure out why the governor griped so loudly, and consistently. People are leaving his state, largely due to the crushing burden of taxation. In just a seven-month period from last September through this March, more than 33,500 New Yorkers changed their drivers’ licenses to Florida. There are even moving companies that advertise New York-to-Florida moves, pointing out that the Sunshine State, unlike the Empire State, has no state income tax.

But Cuomo doth protest too much, given that this spring he made New York even less competitive by signing a tax increase. The “temporary” tax increase pushes the combined state and local tax rate in New York City to nearly 15 percent. The Cuomo tax increase, combined with the federal tax increases House Democrats proposed, would mean that government at all levels would take 61.2 percent of each additional dollar “rich” New Yorkers earn.

Break for Top 5 Percent of Families

The analysis Bloomberg published, based on data provided by the conservative Tax Foundation, indicated that repealing the SALT cap would erase more than three-fifths of the tax increase the top 1 percent of taxpayers would face under the House’s tax bill. Instead of seeing their after-tax income reduced by 5 percent, their income would decline by 1.9 percent.

Other taxpayers in the top 5 percent of filers—those with incomes between $165,181 and $401,600—would see their after-tax incomes rise by 0.9 percent with a SALT cap repeal, meaning they would see a net tax cut. Without the repeal included in the House legislation, these taxpayers’ after-tax incomes would fall by 0.3 percent.

Put aside for a moment the fact that households making $200,000 or so per year should not face revenue hikes under the House bill, given President Biden’s pledge that families earning below $400,000 would not see tax increases. Democrats pushing for a SALT repeal are insisting that households earning a quarter-million dollars or so per year—wealthy in just about every area of the country, except greater New York and San Francisco—receive a huge financial windfall, so those wealthy families don’t have to pay more to fund bloated blue state governments.

Budgetary Gimmick to Fund a ‘Temporary’ Bailout

Make no mistake: While it did not get included in the draft bill the House Ways and Means Committee approved last week, many Democrats are pushing for a SALT repeal. Ways and Means Chairman Richie Neal (D-MA) issued a statement last week along with two prominent lawmakers pushing for a SALT deal, in which they all pledged to advocate for “meaningful SALT relief.”

Friday’s Bloomberg story indicated that “House lawmakers are discussing a two-year suspension of the SALT cap” in their bill. In truth, that suspension would likely prove as “temporary” as the tax increases Cuomo signed for New York state earlier this year.

But including a suspension of the SALT cap as a “temporary” measure would hide its full long-term. The Joint Committee on Taxation estimated a full SALT repeal would cost $88.7 billion this year alone—meaning a permanent repeal would cost roughly $1 trillion over a decade.

To sum up: Democrats are considering a budgetary gimmick to conceal the size of a potential trillion-dollar giveaway to rich families and poorly-run states. Think about that the next time any leftists start lecturing others about how “the rich” need to “pay their fair share.”

This post was originally published at The Federalist.