GOP lifted up the salt cap and split it
Rep. Mike Lawler (R-NY) is set to discuss on “Sunday Morning Futures” Trump’s meetings with Blue State Republicans regarding the lifting of salt caps and costs in New York City.
So, if you’re in Florida or another low-tax state, be yourself, I guess. There’s a bipartisan group of Blue States lawmakers thinking about hitting your state’s finances hard. They’re pushing to raise the federal income tax credit limits for state and local taxes, known as SALT.
If they pull this off, it could mean middle-class Americans in Red States end up subsidizing wealthy folks in places like California and New York.
Before Trump’s tax reforms in 2017, SALT deductions worked pretty well to benefit wealthy residents by lowering their federal tax burdens. At that time, it was all about high-tax states benefiting from these deductions.
A few Republicans have managed to derail Trump’s grand tax plan in key House committees.
This situation looks like a way to shift wealth from wealthier workers in low-tax states, who miss out on deductions, making their federal tax obligations even heavier.
Holding the deduction at $10,000 was, in a way, a clever response to that issue. It forced wealthy residents in high-tax areas to actually feel the impact of their taxes while still protecting middle-class households.
With the added strain of COVID lockdowns, many are realizing just how excessive state taxes can be, leading to significant migrations. Florida’s population has swelled by over a million, while California and New York have lost about a million each.
Right now, lawmakers from both parties in Blue States are threatening to undo Trump’s tax cuts. If the SALT deduction isn’t revived or expanded, it could all expire this year, which would, I think, not be a good thing.
Raising the SALT cap mostly helps wealthy individuals, not the middle class, especially those earning over $200,000. Middle-class families using the standard deduction often aren’t benefiting at all.
The question is, who will end up paying for this favor to wealthy taxpayers? Likely everyone else. Increasing SALT deductions could either lead to higher taxes for most people or cause a budget shortfall that results in bigger inflation problems. In other words, middle-class families across the country may end up footing the bill for these excessive SALT deductions.
What’s worse, these deductions weaken competitive federalism, a core aspect of our constitutional setup. The original intention was for states to compete for residents and investment by keeping taxes low and regulations minimal.
Some progressives like to call it a “race to the bottom,” yet their actions have historically stifled this inter-state competition, especially since the tax authority of Congress expanded significantly in 1913. In the 1920s, they even pushed through federal real estate taxes, enabling state property taxes to be deducted from federal ones.
This change turned property taxes into a sort of national issue, targeting states like Florida, making retirees and others choose between high state real estate taxes or federal taxes.
Florida ended up suing, claiming this system amounted to unfair federal taxation, but the increasingly progressive Supreme Court dismissed their case in Florida v. Mellon (1927).
Today, proponents of SALT in states like California, New York, New Jersey, and Illinois often complain about “double taxation,” which ironically adds extra layers of taxation for their residents. They seem upset that Trump’s SALT caps revealed the true burden of high taxes on everyone.
Florida risks losing a lot from this push to restore the SALT deduction. It could damage the state’s competitive edge, force financial burdens elsewhere, and unfairly penalize Floridians for their successful policies.
SALT deductions aren’t just a handout for the wealthy. Rather, it feels like a tactic to distribute the tax burdens from blue states nationally. Congress should really consider eliminating it altogether instead of reviving it to benefit the richest.
