It’s time to do away with SALT.

That is, the State and Local Tax deduction.

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Among the provisions of the GOP’s tax-cutting plan that has drawn intense opposition (mostly from Democrats) is the elimination of state and local tax (SALT) deductions for folks who itemize their deductions (versus taking the standard deduction).

All else equal, eliminating the SALT deduction would income taxes paid to the federal government by about $180 billion each year … providing some wiggle room for cutting income taxes in other ways.

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So, why the uproar? Who gets hurt if the SALT deduction is eliminated?

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According to a recap in the IBD

Fewer than 22% of tax filers even claim the state and local tax deduction

The benefits go almost entirely to upper-income families.

78% of those with incomes above $200,000 claim the SALT deduction

For most taxpayers, the standard deduction is more valuable.

So, only 7% of those making between $30,000 and $40,000 claim the deduction.

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Put differently, for those earning more than $200,000, the SALT deduction cuts their annual federal tax bill by an average $6,295.

For those with incomes of between $100,000 and $200,000, the average just $857.

Folks earning from $30,000 to $40,000 get a whopping average of $93 off their federal tax bill.

Note: Since the GOP plan would nearly double the standard deduction, the impact of eliminating SALT deduction for low- and mid-income folks is a non-issue.

Bottom line: 88% of the $180 billion the SALT tax break goes to the 10% of families with incomes above $100,000.

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But, two groups are intent on keeping the SALT deduction: (1) those who haven’t read the above and (2) high-income folks living in high tax states (think: blue states).

In fact, just seven states — California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, and New York — account for more than half the claimed SALT deduction. California alone claims almost 20%.

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In effect, then, the SALT tax break is simply a redistribution of wealth – from fiscally-disciplined states … to free-spending (think: liberal) states.

Doesn’t sound fair to me,

So, I say “bag the SALT”.

But, even I doubt that the GOP will have the stones to cut the SALT

We’ll see…

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One Response to “It’s time to do away with SALT.”

  1. John H Carpenter Says:

    The reason the SALT deduction proposal will fail is because Americans should not have to pay tax on money that is used to pay taxes. That should be the only consideration here. The other arguments, especially the one that characterizes spending as undisciplined, are transparent attempts to inject support for a set of political value judgements into the tax code. It is ludicrous to think that Massachusetts, which is likely here one of the undisciplined liberal states, has a less thoughtful or appropriate tax code as the “fiscally-disciplined”, conservative, states of Kansas or Oklahoma where their “low spend” tax code has ruined the state’s ability to support things as fundamental as good roads and education.

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