WILFORD: Even The New York Times Now Agrees — Wealthy Taxpayers Don’t Need A SALTy Tax Break

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Andrew Wilford National Taxpayers' Union Foundation
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Someone check the temperature down below — the nation’s most prominent left-leaning blue-state newspaper editorial board is making sense when it comes to a tax deduction favored by left-leaning blue-staters.

This past month, The New York Times editorial board, which has historically defended the state and local tax (SALT) deduction, reversed its position. Not only does the Times’ editorial board now oppose lifting the $10,000 cap put in place by the 2017 Tax Cuts and Jobs Act (TCJA), but it now supports fully eliminating the SALT deduction.

The editorial board is correct on both counts. Progressive defenses of the SALT deduction have always reeked of hypocrisy; after all, most of the same advocates of the full SALT deduction are often harsh critics of income inequality and yet the tax break is almost exclusively enjoyed by the wealthiest Americans. That’s bound to lead to a great deal of cognitive dissonance, particularly considering how the SALT deduction is one of the least progressive deductions in the tax code.

Certainly, no one who claims to be concerned about income inequality should oppose the $10,000 SALT cap. Repealing the cap would deliver well over half of the benefit to the top one percent of households, while the bottom half would receive a measly four percent. Inequality crusaders opposing the SALT cap might as well be solemnly proclaiming the need for a sales tax holiday on yachts to help the middle class.

But the Times is also correct in taking this argument a step further — capping the deduction is good, but getting rid of it entirely is even better. Even before the TCJA, only taxpayers who did not take the standard deduction could claim the SALT deduction on their federal tax returns. Since most taxpayers take the standard deduction, those who itemize were a small group that skewed wealthy before the TCJA, and that group has only grown smaller and skewed wealthier with the TCJA’s passage.

After all, the SALT deduction functions as a break for high-tax states. Wealthier taxpayers living in these states effectively have part of their state tax bill shifted to citizens in other states, as the higher their state and local tax bills are, the lower their federal tax bills will be. Part of why high-tax state governments have been panicking about the SALT deduction cap is that their wealthy cash cows have begun feeling the full bite of their high state tax bills.

Getting rid of the SALT deduction would take away a major tool that high-tax states use to keep their wealthy tax base from packing up and leaving. New York Governor Andrew Cuomo, fresh off yet another round of tax hikes on the wealthy, has already begun trying to soften the blow by promising that the bite of his proposed tax increases would be blunted once the SALT cap is repealed.

Neither should taxpayers buy the smokescreen arguments made to justify the SALT deduction, such as the idea that it prevents “double taxation.” This is based on a misunderstanding of what “double taxation” is — when a taxpayer pays tax to two different governments for two different sets of government services, it may be annoying, but it is not double taxation.

After all, state governments do not allow you to write off the taxes you paid to your local government on your state tax return, so why should state taxes be deductible from your federal tax return? Of course, progressives who make this argument often seem far less concerned with actual cases of double taxation, such as capital gains taxes and corporate taxes.

It’s good to see the Times editorial board making an effort to make a more ideologically consistent argument on the SALT deduction. The fact is, there’s plenty of reason to oppose the deduction no matter how you identify politically.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.