The SALT squeeze
Congress must ignore Kudlow, keep pressing for restoration of the deduction
President Trump’s top economic adviser was rubbing SALT in New York State’s wounds when he said this week that Congress in unlikely to undo the $10,000 cap on state and local tax deductions it imposed in 2017.
The cap, part of a tax overhaul bill initiated by the Trump administration and passed by congressional Republicans, came as a jolt in high-tax states like New York whose voters also tend to favor Democrats, giving the bill more than a hint of political payback.
Larry Kudlow, director of the National Economic Council, told reporters at a breakfast meeting in Washington on Wednesday that there is little appetite in Congress for changing the limit on state and local taxes (called SALT), despite the president saying in February that he would be open to revising it.
Under previous law, taxpayers across the country could deduct all their state and local taxes.
Kudlow contends that the SALT cap is primarily a rich people’s problem. He said many wealthy homeowners earned enough to be forced to pay the Alternative Minimum Tax, a special rate that doesn’t allow for deductions. The 2017 tax bill boosted AMT exemption levels, giving more high-income earners the ability to itemize deductions.
The argument that “we’re only hurting the rich, so everything’s fine” is an interesting argument for a Republican administration official to make, but it doesn’t hold up.
The definition of “middle class” is always up for debate, but in New York State it’s clear that having state and local tax bills that amount to more than $10,000 doesn’t only happen to people who drive Rolls-Royces. The federal SALT cap was a blunt political instrument intended to hurt the blue state that President Trump calls home, and it’s working. Last month Gov. Andrew M. Cuomo said that 52 counties in New York have average taxes above the SALT cap, meaning their average taxpayer is facing a tax increase.
Kudlow’s answer is that New York State could always lower its taxes. That sentiment was echoed by Rep. Tom Reed, R-Corning, who serves on the tax-writing Ways and Means Committee. Reed, in an Another Voice column published March 6 in The News, wrote that if Cuomo and the State Legislature lowered taxes across the board, “the SALT cap would be a non-issue.”
New York’s taxes are too high, as we have observed many times, but no one has yet come up with a magic formula to shrink them. Punishing New Yorkers by raising their federal taxes doesn’t exactly fit “the crime” of living in our state.
Reed, who along with Rep. Chris Collins of Clarence voted “yes” on the 2017 tax overhaul, talks vaguely about being open to the idea of revising the SALT cap, but he’s not about to rock any Republican boats.
Rep. Brian Higgins of Buffalo is part of a group of Democrats who are trying to come up with an alternative to the SALT cap that could be acceptable to members of both political parties. He needs to continue pressing the case.
When it comes to the federal treasury, New York is a donor state that sends billions more to Washington than it gets back. To use a New York expression that Kudlow knows well from working on Wall Street: Give us a break!