Q: This week’s Senate Republican tax plan fully eliminates the deduction for state and local income taxes (“SALT”). Is this a bad thing?

  Marie Morelli, http://www.syracuse.com/opinion/index.ssf/2017/11/editorial_cartoons_for_nov_12_2017_trumps_asia_visit_gop_election_setbacks_churc.html

Marie Morelli, http://www.syracuse.com/opinion/index.ssf/2017/11/editorial_cartoons_for_nov_12_2017_trumps_asia_visit_gop_election_setbacks_churc.html

Q: This week’s Senate Republican tax plan fully eliminates the deduction for state and local income taxes (“SALT”). Is this a bad thing?

A: First, let’s remember the Republican’s goal: to give a massive tax cut to the plutocrats among us (see chart above). To help pay for goodies to billionaires, Republicans want to eliminate the deduction for state and local income taxes- this is a tax increase for anyone who claims the deduction. On federal tax returns, if you itemize your deductions (vs. taking the standard deduction, like about 2/3rds of Americans), you can deduct what you pay in state and local income taxes. People who do this are generally higher income and live in higher tax states, like NY. There are many ways to think about this deduction, and what resonates with you will probably determine how you view this part of the GOP tax-cuts-for-billionaires:

  • The federal government (indirectly) subsidizing taxes for states and cities (mainly for high-tax states/cities with high-income residents)
  • Reducing double or triple taxation on the same income (once at the state level, perhaps again at the city level, and again at the federal level)
  • Tax relief to higher income people who pay the most $ to state and local taxes
  • Lower-tax states subsidizing higher-tax states, since lost federal tax income from this deduction will need to be made up elsewhere

If you think the things in this list are a good (bad) thing, you’ll want to keep (remove) the SALT deduction. Of course, if we didn't have to cut taxes for billionaires, we wouldn't be discussing SALT at all...

- originally published in the 11/12/2017 newsletter

Stephanie Lee