Paul L. Caron
Dean



Wednesday, September 9, 2020

The Tax Cut For The Rich That Democrats Love: The State & Local Tax Deduction

New York Times op-ed:  The Tax Cut for the Rich That Democrats Love, by Richard V. Reeves & Christopher Pulliam (Brookings Institution):

Why on earth ... are Democrats fighting — and fighting hard — for a $137 billion tax cut for the richest Americans? Mr. Biden, Nancy Pelosi and Charles Schumer don’t agree on everything, but on this specific issue they speak with one voice: the $10,000 cap on deductions for state and local tax (better known as the SALT deduction) must go. ...

Lifting it would therefore reverse one of the few good things about the 2017 bill. Almost 60 percent of the benefit of removal would go to the top 1 percent of households (of which 90 percent are white). For the superrich, the top 0.1 percent, repeal would make for an average tax cut of around $145,000 a year. In isolation, this change would be more skewed to the rich than the Republican tax bill as a whole.

What’s going on here? Senator Schumer and others are dressing up the cut in anti-Covid clothes, suggesting that it would help people in decimated cities like New York. This is specious. It is true that potential beneficiaries mostly live in higher-tax cities and states, but it is the richest residents who would reap most of the rewards. ...

The real motives here are surely political; for many Democrats in 2020, electoral calculations are more important than distributional ones. Unsurprisingly, repealing the SALT deduction appears to be popular among richer voters in blue cities and states.

https://taxprof.typepad.com/taxprof_blog/2020/09/the-tax-cut-for-the-rich-that-democrats-love-the-state-local-tax-deduction.html

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Comments

This is rather simple. Without the SALT deduction, blue states can't tax as much. The blue state tax subsidy has been canned, thankfully.

Posted by: Anon | Sep 9, 2020 2:58:14 PM

Also, do the Democrats in New York yet regret telling Amazon to take a hike? I bet they could sure use that $27 billion in now forfeited tax revenue. HahahahHAHAHAHAHA

Posted by: Anon | Sep 9, 2020 3:00:32 PM

I can personally attest to the rank hypocrist of upper middle class and wealthy liberal Democrats. They hate being forced to pay more in taxes if they can't force *everybody else* to also pay more in taxes. Evidently, they don't really believe in a progressive tax system, because the SALT deduction cap predominantly affected the upper end of blue state households. And that's their fault, because of their choices of where to live, and how much their homes are worth.

Posted by: MM Classic | Sep 9, 2020 7:20:33 PM

The authors overlook a solution that would retain revenue and progressivity -- restoring the SALT deduction but subject to a floor of 5% of AGI.

Posted by: Victor Thuronyi | Sep 10, 2020 9:17:42 AM

How about we eliminate all itemized deductions?

Posted by: Dale Spradling | Sep 11, 2020 6:23:22 AM

David Cay Johnston has another idea: raise the cap but only for those making less than $1 million a year. https://twitter.com/DavidCayJ/status/1303752674605756419

Posted by: Gerald Scorse | Sep 11, 2020 7:09:49 AM

Victor: What's the justification for SALT deductions? From what I understand, they're just de facto subsidies for rich living and higher housing prices in expensive urban and suburban areas.

Posted by: MM Classic | Sep 11, 2020 7:47:11 PM

Gerald: Thanks you for arguing, as a liberal or progressive I'm assuming, for tax cuts for wealthy blue state residents.

Nothing hypocritical about that, right? While you call for tax increases elsewhere on everybody. Capital gains, for example.

Posted by: MM Classic | Sep 13, 2020 1:28:32 PM

It's not a tax cut for the rich. It's a tax cut for the middle class. Billionaires were already capped out under the old $1.1 million mortgage limit. The new $750K limit is hitting middle class professionals.

Plus all those state and local taxes pay for the public schools and the public transportation that the poor and the middle class are using. The federal taxes are going into the military to protect the value of overseas holdings for big property owners.

Posted by: Who is rich | Sep 14, 2020 2:32:57 PM

Who: "It's not a tax cut for the rich."

According to the Tax Foundation, 80% of households earning over $100,000 per year and 90% of households earning over $500,000 per year took SALT deductions. For middle class households, it's less than half. And for working class households, it's less than a quarter.

https://taxfoundation.org/salt-deduction-benefit/

So your claim about the SALT cap not primarily benefiting the wealthy is false. And I'm finished.

Posted by: MM Classic | Sep 14, 2020 8:23:58 PM