House Democrats promise 'meaningful' relief for state and local tax deduction cap

[Calista241]

Source: CNBC

House Democrats have said they will pursue “meaningful” change to the $10,000 cap on the federal deduction for state and local taxes, known as SALT.

The controversial measure is part of former President Donald Trump’s signature 2017 tax overhaul and has been a pain point for Americans in high tax states.

...

However, the proposed repeal has received pushback from lawmakers who argue the tax cut may primarily benefit the wealthy.

The top 20% of taxpayers may receive more than 96% of the benefit of a SALT cap repeal, according to a Tax Policy Center report, and only 9% of American households may be affected.

Moreover, the top 1% of households may receive 54% of the benefit, with an average tax break of $34,000.

The cap on the SALT deduction brought in $77.4 billion the first year it was instated, according to the Joint Committee on Taxation. Removing the limit for 2021 may cost $88.7 billion, and more in future years.

Read more: https://www.cnbc.com/2021/09/15/democrats-vow-meaningful-relief-for-state-and-local-tax-deduction-.html

[smb]

1. This Is An Important Reform

This aspect of Cheato's tax scam was specifically designed to penalize states that enact adequate tax levels to maintain civic and physical infrastructure and encourage a "race to the bottom" effect to turn the entire country into Texas-type shithole states.

If anything, the SALT tax offset should be increased from its former level and made a percentage credit (preferably at least 50%, if not a full 100%) off the final federal tax bill (which also offsets the "biased toward the upper middle class" complaint, since a percentage credit wouldn't have increased effect at higher tax brackets).

[berni_mccoy]

2. The SALT cap was a blue state punishment

Blue states (MA, NY, CA) already contributed far more to the federal revenue before this cap was added than feeder red states (AK, TX, FL) that have no state income tax. The cap was just more beating down of blue state economies.

[Calista241]

3. It's a cap on tax deductions for rich people.

Why is such a cap a bad thing? Isn't taxing rich people something we're supposed to be supporting?

[berni_mccoy]

4. Rich people already pay little to no SALT.

The live and/or work in states that don’t have SALT. They are far more able to avoid it than middle class families in blue states.

For example: https://cowboystatedaily.com/2021/04/22/mtv-celebrities-are-moving-to-wyoming-due-to-tax-laws/

[OneCrazyDiamond]

5. +1

[Freddie]

8. It's a punishment for people in blue states

Who pay more in state and local taxes to support things like schools.

[lapucelle]

10. It's a cap on the tax deductions of middle class homeowners in blue states . N/T

[Calista241]

13. If you pay more than $10k in property tax per year, you are very high up in the middle class

at a minimum.

We're not talking about some mid level accountant or manager with a wife and 2 kids in his split level house. People with vacation homes and $2m houses are the ones that run afoul of this cap. As far as I'm concerned, let them eat cake and pay the taxes they should've been paying the last 50 years.

[BumRushDaShow]

17. The "problem"

is we're not just talking about "property taxes" that were changed with the SALT change. "SALT" = "State and Local Taxes" and can include state/county/city "income taxes".

The average "suburb" is known to use property taxes in lieu of other types of taxes to get income. And you have cities like mine (Philly, which is also its own County) where you have a "city wage tax", "property taxes", AND the state's income tax on top of that. These taxes fund state and city services and fund the public schools. This is not counting our city's 2% sales tax on top of the state's 6% sales tax (where sales taxes were part of the "either/or" for deductions on federal income taxes before the "tax give-away to the wealthy" changes that were made to the tax code in 2017). And I won't even go into the fact that PA has the highest gasoline tax in the country.

The idea of a "middle class" is what has supposedly been the answer to the dichotomy of "rich" vs "poor" and it's a given that people in the "middle class" may see themselves as "poor" compared to the very wealthy, but there shouldn't be a view where they are lumped in as "very wealthy" either, when compared to the poorest among us.

Based on your profile, you indicate you live in Atlanta (although I wouldn't know if that is still true or not). I have both relatives and former co-workers/friends down there. They moved there because of the "cheap cost of living". One of my buddies was able to buy a 2-story, 3 bedroom single house with a garage and 2nd floor deck for $150K when she had moved down there. That type of house would easily cost $600K here in Philly as a "single" ("detached" ) on a 1/4 acre or more, where the typical 2-story 2 or 3 bedroom "row house" ("attached" ) has suddenly been going for $80K as the cheapest, upwards of $200K for the gut-and-renovate types, in one of the poorest neighborhoods in the city (Huntingpark/Nicetown/Tioga).

So as noted by others in this thread, the impact of the SALT change ended hitting blue states and municipalities that use tax money, whether through "property taxes" and/or income taxes (or both like here), to fund services.

[lapucelle]

23. That's not true where I live on Long Island. N/T

[KPN]

18. Because it's a cap on middle class families as well, some of which are barely middle class. There's

no reason the cap couldn't be lifted for only those below a certain income level, or on the basis of a progressive scale -- the lower the income, the higher the SALT relief. That would be a better solution -- but would Congress critters go for that? Still far too many predominantly "self-interested" members for my liking, but we shall see.

[cinematicdiversions]

14. First of all TX was one of the biggest victims of the cap.

I am not sure why you would have them in the second category.

Second, this is a tax break for overwhelming wealthy white people. They are mostly democratic voters true. But they are wealthy white democratic voters.

[berni_mccoy]

21. Texas has no state income tax and the state takes more

Federal money than it contributes.

[cinematicdiversions]

30. TX has almost NJ levels of property taxes.

Texas has a large upper middle class with expensive properties which is the primary target of the tax.

The SALT deduction tends to benefit states with many higher-earners and higher state taxes. This was true prior to the SALT deduction cap and remained the case in 2018. Seven states—California, New York, Texas, New Jersey, Maryland, Illinois, and Florida—claimed more than half of the value of all SALT deductions nationwide in 2018.

https://taxfoundation.org/salt-deduction-salt-cap-repeal/

The SALT deduction helps the wealthy, so states with large amounts of wealthy are hurt more than states without such a burden.

[FBaggins]

20. That cuts both ways

Let's say you're a hypothetical state that needs to raise $5,000 from a given taxpayer.

It's easier to "sell" to that taxpayer when it's only going to be a net drain of $3500 and the federal government will pick up the rest of the bill.

It's a reasonable question to ask what authority a state legislature ought to have to effectively tax the federal government (or, more precisely, the taxpayers of other states).

It was an easy sell to the republicans who passed it since it hurt comparatively few people and they were mostly in blue states - but that doesn't change the competing priorities.

Consider an alternative plan. Federal tax brackets are somewhat progressive, but they're the same across the country. Meanwhile, $100k for a family of four in a South Carolina suburb is a very different lifestyle than that same income for the same family in San Francisco. Should the federal tax brackets be differentiated by the cost of living where the taxpayer lives?

[thesquanderer]

6. It's easy to prevent the benefit from being too skewed to the wealthiest...

...they could do something as simple as changing the cap from the current $10k to, say, $100k. It doesn't need to be entirely uncapped as it was originally.

[berni_mccoy]

7. Or the cap could be based on their income

The higher the income the lower the cap.

[BumRushDaShow]

9. THIS

Right out of my mouth!

Let it be "means tested" with a top income bracket that excludes the multi-millionaire and billionaire class.

[twodogsbarking]

11. Get rid of all deductions.

One page. No fuckin' 'round.

[berni_mccoy]

12. As a working person who pays plenty of state and federal taxes, no way. We need deductions

Why?

Because without them, you are being taxed twice (or more) on the same income.

We pay local taxes on cars, homes, everything we buy. To have our income taxed twice without consideration of the other tax is not acceptable. This is why the SALT cap was so bad to begin with.

[OneCrazyDiamond]

15. It is true you are taxed twice, but

it is only on local taxes above $10,000. I live in deep blue with lots of assets, and make upper class income. I don't come near 10K in local taxes, but I don't have a rental property.

[berni_mccoy]

16. Most people easily hit that in MA

Between property tax and state income of 6.5%

[OneCrazyDiamond]

25. Most people if MA easily hit that?

for 6.5% to top 10K the taxable would have to be over 153846.15 per year.
Below that is deductible.

[berni_mccoy]

27. Yes. Two people with combined income of 100k

Will pay 6500 in income taxes. If they live in a 200k house, they will easily hit 4K in real estate taxes, going over the cap.

[cinematicdiversions]

31. Two people with a six figure income should pay more taxes.

And I doubt anyone with a six figure income lives in a 200k house in MA if such a house even exists.

[OneCrazyDiamond]

32. In that scenario I would take the standard deduction.

Itemizing won't bring a benefit unless they repeal the cap.

[BumRushDaShow]

19. In the city of Philadelphia

PHILA CITY WAGE TAX (RESIDENTS) = 3.8398%
PA STATE INCOME TAX (RESIDENTS) = 3.07%
PHILA REAL ESTATE TAX (GENERAL) = 1.3998% (on assessed property and that is where the finagling happens)

[OneCrazyDiamond]

26. You guys don't have a progressive rate?

Just flat percentages?

[berni_mccoy]

28. Most state income taxes are flat, yes. And you must factor in

Real estate and all other local taxes.

[BumRushDaShow]

29. No progressive rates

Before I retired (which was 10 months befre tax cuts for the wealthy was enacted), my deductions just for state/local income/wage tax were way more than the standard deduction. Since I was renting at the time, I didn't have a property tax deduction that could have also been itemized, but obviously many would have had such.

And in fact, the city wage tax JUST got cut a little this year.

It was over 1% higher than that in past years - starting in the '80s, when it was 4.96% range (for residents), which was enacted literally a couple years before I started my federal career and continued at that rate until the mid-90s.

In fact, found it here (pg "vi" ) - https://www.phila.gov/media/20180301140801/Income-tax-regulations.pdf

On June 2, 1983, an ordinance was approved which increased the rate of tax to 4.96% of salaries, wages, commissions and other compensation earned by residents on and after July 1, 1983.

Effective January 1, 1993 the depository requirements were changed for employers required to withhold Philadelphia Wage tax:

Quarterly (W-1): less than $350 tax due per month
Monthly (W-5): from $350 to $16,000 tax due per month
Weekly (W-7): greater than $16,000 tax due per month

On September 16, 1994, Sections 301 and 303 of the Income Tax Regulations were amended due to Act 48 of 1994 (Commonly known as Suburban Withholding). The state law requires all employers having a place of business within the Commonwealth of Pennsylvania who previously had not been required to withhold the City of Philadelphia Wage Tax to begin withholding and remitting at the prescribed rates on all residents of Philadelphia within its employ.

On March 30, 1995, the Ordinance was amended to decrease the rate of tax for residents to 4.86% on net profits earned after January 1, 1996; and on salaries, wage, etc., earned after January 1, 1996.

I think that series of decreases happened when Rendell was mayor here (before he eventually became governor).

[PoliticAverse]

22. I guess the rich will get their tax cut.

"Lifting the cap on the SALT deduction would massively favor the rich, with most of the benefit going to the top one percent "
https://www.brookings.edu/blog/up-front/2020/09/04/the-salt-tax-deduction-is-a-handout-to-the-rich-it-should-be-eliminated-not-expanded/

[BumRushDaShow]

24. I don't think they will end up with a "full repeal"

There have been multiple other solutions out there including raising the CAP. For example, this was what was being bandied about back in July -

Democrats search for sweet spot on ‘SALT’ deduction

Compromise may be at hand over state and local tax deduction


By Lindsey McPherson
Posted July 1, 2021 at 5:30am

House and Senate Democrats are struggling to balance a general desire to make the wealthy pay their fair share with regional interest in restoring a tax break that disproportionately benefits upper-income households. The party has yet to find a solution to its “SALT” problem, but Democrats on both sides of the debate over the deduction for state and local taxes are ready to compromise. Republicans capped the SALT deduction at $10,000 in their 2017 tax law, leading 10 Republicans from high-tax states New Jersey and New York to vote “no.” There’s bipartisan support for repealing the cap, set to expire after 2025. But Democrats are looking to address the issue in a filibuster-proof budget reconciliation bill this fall that’s expected to offset trillions of dollars in new spending with tax increases that won’t get GOP support.

House Democrats can’t lose more than three votes on their side after a July 27 runoff between two Republicans to fill the vacancy in Texas’ 6th District. Senate Democrats can’t lose any in that 50-50 chamber.A compromise short of full repeal appears to be the direction Democrats are headed, lawmakers and aides say. They may lose two House Democrats — New York’s Tom Suozzi and New Jersey’s Josh Gottheimer — who have taken a hard line. But more limited SALT relief is seen as satisfying enough lawmakers to avoid sinking the broader bill. New Jersey Rep. Bill Pascrell Jr., who earlier this year joined Suozzi and Gottheimer in pledging “No SALT, no deal,” said in a brief interview that he’s willing to accept less than full repeal. “I wanted to say I’d set [the cap] to about $25,000. But I’ll settle for [$20,000],” he said.

Support for the SALT deduction has always fallen more on regional lines than ideological ones. Top Democrats such as Senate Majority Leader Charles E. Schumer of New York and Speaker Nancy Pelosi of California support repealing the cap because it would benefit their constituents. But they’re also conscious of concerns from Democrats in lower-tax states that the deduction, which can only be claimed by taxpayers who itemize, helps wealthy households the most. A 2019 Joint Committee on Taxation report projected that 94 percent of the benefits of SALT cap repeal that year would go to taxpayers earning $100,000 or more. But about one-third of returns claiming the deduction would be households in the $100,000 to $200,000 range, the JCT found. In states like New York, New Jersey and California, with higher costs of living, those are middle-income earners.

Sanders proposal

A sign that a potential SALT compromise is in the offing was Senate Budget Chairman Bernie Sanders, I-Vt., setting aside just $120 billion for relief from the $10,000 cap in a draft budget outline. The JCT has told Suozzi’s office that his bill to repeal the cap would cost $385 billion. Sanders didn’t include a specific proposal, but he wants to limit the deduction so it can’t be claimed by the richest taxpayers. “We’re looking at various options,” Sanders said last week. “In high-tax states, it is fair that people can take a serious deduction. On the other hand, when you’re looking at billionaires that own multimillion-dollar mansions, should they be able to get the complete deduction? No.” A source familiar with Sanders’ thinking said he’d be comfortable repealing the cap but phasing out the deduction for those making more than $400,000 annually.

https://www.rollcall.com/2021/07/01/democrats-search-for-sweet-spot-on-salt-deduction/

So like is often the case, we are seeing the "negotiating" and the "sausage-making" playing out in the press.

[cinematicdiversions]

33. Plus forgiveness of college loans?

Could be a good time to be white and wealthy.

Thank you congress.