Pelosi’s Proposed SALT Cap Repeal Would Do Nothing to Address Coronavirus Pandemic or Help Middle Class

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Posted by Alex Hendrie on Tuesday, March 31st, 2020, 3:20 PM PERMALINK

In a recent interview, House Speaker Nancy Pelosi said that Democrats will push to retroactively repeal or roll back the cap on state and local taxes (SALT) in a forthcoming Coronavirus stimulus package.

Rolling back the SALT cap would do nothing to help fight the Coronavirus, nor would it do anything to help the middle class. Instead, it would expand bad tax policy that subsidizes high tax, big government states. Rather than repealing or rolling back the SALT cap, lawmakers should repeal the SALT deduction entirely as part of legislation that offers broad based tax reduction for American families. 

The 2017 Tax Cuts and Jobs Act limited the deduction for state and local taxes (including property taxes and either sales taxes or income taxes) to $10,000. 

Democrats claim this $10,000 cap raised taxes and that it erodes fairness in the tax code leading to double taxation because individuals are now paying federal taxes on income that was already subject to state and local taxes.

However, this argument is flawed. 

First, the majority of Americans are seeing tax cuts. The TCJA reduced taxes for roughly 90 percent of Americans and for taxpayers at every income level through lower rates, the expanded standard deduction, and the doubling of the child tax credit.

Second, the TCJA raised the income tax thresholds that the Alternative Minimum tax kicked in, meaning that an estimated 4.5 million families are now able to claim $10,000 in SALT deductions, which was previously disallowed by the AMT. 

Lastly, the majority of Americans were not deducting state and local taxes before the cap and are therefore unaffected by the change to the deduction.

Prior to passage of the 2017 Tax Cuts and Jobs Act, roughly 105 million American families took the standard deduction and deducted zero in state and local taxes.

This number has only increased since the Tax Cuts and Jobs Act doubled the standard deduction leading to millions more filers taking the deduction over itemizing. Today, the majority of Americans – roughly 90 percent of filers, or 135 million taxpayers, instead claim the standard deduction of $12,400 for an individual and $24,800 for married filers.  Rolling back or repealing the SALT cap will therefore do nothing to benefit the majority of filers.

Raising or repealing the SALT cap would overwhelmingly benefit wealthy, blue states. In fact, 94 percent of the benefits from repealing the SALT cap would go to taxpayers making more than $200,000 a year, according to Joint Committee on Taxation. 

Even progressive leaning groups and lawmakers have criticized proposals to raise the cap.

For instance, the left leaning Center for Budget and Policy Priorities has stated that this proposal would be “regressive and costly.” The Center for American Progress has stated that repeal of the SALT cap “should not be a top priority” as it would “overwhelmingly benefit the wealthy, not the middle class.”

In addition, Senator Michael Bennet (D-CO) recently criticized efforts to repeal the SALT cap noting that it runs counter to Democrat ideals: “We can say we’re for a progressive tax bill and for fighting inequality, or we can support the SALT deduction, but it’s really hard to do both of those things.”

Any effort to raise the SALT cap as proposed by Speaker Pelosi would do little if anything to benefit middle class families and would instead be a give away to high-tax states. This is another attempt by the left to put unrelated proposals in Coronavirus legislation and should be rejected by lawmakers.

Photo Credit: Gage Skidmore

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