Democrats brush off tax bill ben­e­fits

The Washington Times Weekly - - Politics - BY S.A. MILLER

Even af­ter los­ing the state and lo­cal in­come tax de­duc­tion, tax­pay­ers in New York and other high-tax blue states would still end up ahead un­der the Repub­li­can tax re­form bill, an­a­lysts say.

But that mes­sage is hav­ing a tough time break­ing through the din in Washington.

Democrats have seized on the state and lo­cal tax de­duc­tion, or SALT, as their chief ar­gu­ment against the tax code over­haul, warn­ing of an elec­toral back­lash from mid­dle-class sub­ur­ban­ites against Repub­li­cans if the plan is ap­proved.

There is one prob­lem: SALT is not a mid­dle-class tax break. The ben­e­fit of the write-off goes over­whelm­ingly to high-in­come earn­ers in high-tax blue states, sev­eral econ­o­mists said.

“SALT is a clas­sic tax pref­er­ence for the rich that Democrats should be op­pos­ing,” said Brian Riedl, an econ­o­mist at the con­ser­va­tive-lean­ing Man­hat­tan In­sti­tute who has been study­ing the tax re­form plans.

“The Democrats’ com­plaints are over­heated,” he said. “Half of the ben­e­fits go to the rich­est 5 per­cent of earn­ers, and nearly all fam­i­lies who would see their SALT de­duc­tion lim­ited would re­ceive big­ger tax cuts else­where.”

An anal­y­sis of the Se­nate bill, which elim­i­nates SALT, would de­liver higher af­ter-tax in­come by the end of the decade in high-tax states such as Cal­i­for­nia, New York and New Jersey.

Mid­dle-class fam­i­lies would have an es­ti­mated gain in af­ter-tax in­come of $3,013 in New Jersey, $2,932 in Cal­i­for­nia, $2,703 in New York and $2,701 in Illi­nois, ac­cord­ing to a study by the non­par­ti­san Tax Foun­da­tion.

Ni­cole M. Kaed­ing, one of the econ­o­mists be­hind the Tax Foun­da­tion anal­y­sis, stressed that 90 per­cent of those claim­ing SALT de­duc­tions make more than $100,000 a year.

“Th­ese in­di­vid­u­als are not mid­dle­class in­di­vid­u­als. They are in the top 20 per­cent of all in­come earn­ers. Even in New York City, me­dian house­hold in­come is $78,000, ac­cord­ing to the U.S. Cen­sus Bu­reau,” she said.

The White House and Repub­li­can lead­ers ar­gue that the nearly dou­bling of the stan­dard de­duc­tion to $12,000 for in­di­vid­u­als and $24,000 for mar­ried cou­ples fil­ing jointly would help off­set the loss of SALT and other pop­u­lar de­duc­tions.

Pro­po­nents of nix­ing the de­duc­tion for state and lo­cal taxes also say the cur­rent sys­tem sub­si­dizes high-tax states such as Cal­i­for­nia, New York and New Jersey. Elim­i­nat­ing SALT de­duc­tions would force those states to cut taxes, they say.

The House Repub­li­cans’ Tax Cuts and Jobs Act in­cludes a com­pro­mise to stop short of nix­ing the SALT de­duc­tions by al­low­ing a write-off of lo­cal prop­erty taxes capped at $10,000.

Democrats and other crit­ics on the left ar­gue that get­ting rid of SALT, which has been in the tax code in one form or another since the fed­eral in­come tax was im­posed in 1913, would sub­ject cit­i­zens to dou­ble tax­a­tion.

They say Amer­i­cans shouldn’t have to pay fed­eral taxes on what is es­sen­tially nondis­pos­able in­come be­cause it gets gob­bled up by state and lo­cal gov­ern­ment.

Democrats also point to stud­ies show­ing ris­ing taxes over time in those high­tax blue states, where res­i­dents earn­ing more than $100,000 a year can be con­sid­ered mid­dle class.

An anal­y­sis by the In­sti­tute on Tax­a­tion and Eco­nomic Pol­icy, a left-lean­ing think tank, found long-term tax decrees in ev­ery state ex­cept four high-tax states: Cal­i­for­nia, New York, Mary­land and New Jersey.

To dis­cern the tax in­creases, the study looked at the im­pact of tax re­forms in 2027 af­ter some cred­its sun­set. If no changes are made, then Cal­i­for­ni­ans would face $12.1 bil­lion in added taxes, New York­ers would pay $4 bil­lion more, Mary­lan­ders would pay $430 mil­lion more and New Jerseyans would fork over an ex­tra $137 mil­lion.

The other 46 states would still reap more than $101 bil­lion in tax cuts in 2027 un­der the House bill, ac­cord­ing to think tank.

House Mi­nor­ity Leader Nancy Pelosi, Cal­i­for­nia Demo­crat, said the study un­der­scored the choice Repub­li­cans from her state must make.

“This week, the 14 Cal­i­for­nia Repub­li­cans will de­cide whether to hit Cal­i­for­nia’s fam­i­lies with the largest net tax hike of any state in Amer­ica,” she said. “Four­teen Cal­i­for­nia Repub­li­cans will de­cide whether to in­flict a dev­as­tat­ing tax hike on their own con­stituents. And af­ter their deaf­en­ing si­lence, any Cal­i­for­nia Repub­li­can who votes for the GOP tax scam will be forced to an­swer why they care so lit­tle for their con­stituents.”

Armed with sta­tis­tics of SALT de­duc­tions bro­ken down by con­gres­sional dis­tricts, Se­nate Mi­nor­ity Leader Charles E. Schumer, New York Demo­crat, went af­ter blue state Repub­li­cans in an ef­fort to peel away sup­port of the tax bill in the lower cham­ber.

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