Liberals and some moderate Republicans are pushing for a tax cut for blue states and liberal elites—no, really. Conservatives are pushing back, but not in defense of higher taxes. A far better approach would be to cut tax rates for everyone—not just increase a deduction for a select few wealthy persons.
That targeted tax cut, called the “state and local tax (SALT) deduction,” is now at the center of the tax bill being debated in D.C.
Here’s how it works. For years, the federal tax code put states such as Texas and Florida—which don’t levy state income taxes—at a disadvantage. While state income taxes were deductible from federal income taxes, sales taxes and fees weren’t.
In other words, the federal government cushioned the blow from high-tax states like New York and California, while penalizing citizens from states with lower tax burdens, by letting some (but not all) taxpayers deduct their state taxes. Over the years, conservative lawmakers sought to get a state and local taxes (SALT) deduction added to the equation, which would include sales taxes and property taxes. It worked—within limits. But because it was based on itemized deductions on a taxpayer’s return, it mostly benefited high-income earners—and not just where you’d expect.
“Before the [Tax Cuts and Jobs Act of 2017], 91 percent of the benefit of the SALT deduction was claimed by those with income above $100,000 and concentrated in six states: California, New York, New Jersey, Illinois, Texas, and Pennsylvania,” the Tax Foundation explains.
The Tax Cuts and Jobs Act, President Donald Trump’s signature legislation, put a limit on how much can be deducted each year. By capping the SALT deduction at $10,000, the new law leveled the playing field for red states and blue states. It’s time to make the deduction permanent.
Instead, a vocal group of lawmakers from blue states like New York and New Jersey want to lift the cap altogether.
“Prior to President Trump’s 2017 tax law that placed a $10,000 cap on the deduction of state and local taxes, my constituents claimed a $63,083 deduction on their federal taxes on average,” said U.S. Rep. Anna Eshoo, a California Democrat, in a press release. “Since then, 200,000 families in my Congressional District have paid higher taxes. This cap is an assault on the middle class…”
Even in pricey California, “middle class” families aren’t claiming more than $63,000 in deductions as they hunt-and-peck their way through TurboTax. The true beneficiaries of lifting the cap would be the wealthy, and you can guess who would pick up the tab.
But even some Republican members of Congress are on board with this gift to Democratic strongholds.
“Southern Californians shouldn’t have to pay more federal taxes on top of their already high state taxes and rising costs of living and housing,” said U.S. Rep. Young Kim, a Republican from California. “We must act to right this wrong, which is why I am fighting to repeal the current cap on SALT deductions and lower taxes for my constituents.”
Yet that leaves everyone else on the hook for California’s budgetary tax-and-spend ways. Republican Study Committee Chairman Rep. Kevin Hern of Oklahoma says that lifting the SALT cap would cost the nation about $91 billion; “That’s sort of the opposite direction where we want to go,” he added.
Liberals say they want a truly progressive tax system; if that’s so, they should support making the SALT cap permanent. As the nonpartisan Congressional Budget Office found, “The TCJA made the tax code more progressive, not less.”
Again, it comes down to fairness—and freedom. Blue states have used the SALT deduction to ease the sting of their skyrocketing state and local taxes, at the expense of taxpayers in other states. That’s not fair. And if people in California and New York don’t like the double taxation, they can always move or vote for better government—that’s the freedom part.
Conservative lawmakers must oppose this tax break for blue states while still promoting fiscal sanity. Let’s make the SALT deduction cap permanent.
The Honorable Robert Henneke is the Executive Director and General Counsel at the Texas Public Policy Foundation.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.