By Robert Hornak
The fight over the federal SALT tax deduction is heating up as the time to pass the next federal budget approaches. Many House Republicans who represent districts in high tax blue states like New York are working feverishly to either eliminate or dramatically increase the cap. This, however, is not the tax code change Republicans should be fighting for.
In 2017 Trump passed the Tax Cuts and Jobs Act (TCJA) which, according to the Tax Foundation, “reduced average tax burdens for taxpayers across the income spectrum and temporarily simplified the tax filing process through structural reforms. It also boosted capital investment by reforming the corporate tax system and significantly improved the international tax system.”
One of the reforms was to set a $10,000 cap on the state and local taxes (SALT) that filers who itemize can deduct. To help offset this for middle class taxpayers who might have previously received a small benefit from itemizing, the standard deduction was almost doubled from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for married filers.
This reform had a few major benefits. First, it reduced the number of people who itemized from approximately 30% to about 10% now, making tax preparation easier. It also helped level the federal tax playing field between high income filers in high tax (mostly) blue states and similar filers in low tax red states.
Naturally, in their relentless mania to attack anything Trump, Democrats claimed the SALT cap was an attack on high tax blue states. It appears that Democrats suddenly forgot that for years they have been screaming that the rich don’t pay their fair share in federal taxes, and in this case they were right. They also ignore one very basic simple fact, states don’t pay federal taxes, people do.
Democrats in places like NY have always claimed that the high local taxes were the price some people were willing to pay for living in such a dynamic city that offers so much professionally, culturally, and gastronomically. But with SALT the only people ultimately paying for that privilege were the middle class. The wealthy took this huge deduction to avoid paying for that privilege.
Simply put, if you earn one million dollars a year and you live in Florida, you are paying the top rate of 37% before deductions and you don’t have state taxes to reduce your federal liability. But if you live in NY and earn one million dollars, you get to deduct the 10.3% you pay in state taxes and an additional 3% if you live in NYC from that 37% rate. That’s over $130,000 right off the top that a wealthy NYC filer earning a million dollars a year avoids paying in federal taxes.
Talk about not paying your fair share. These are exactly the people the Democrats have been talking about for years. The only problem is they are blue state residents (both democrat and republican) and all those people they represent, who for years have been saying that yes, they actually should pay more in federal taxes, suddenly are having a change of heart with this simple fix.
This was essentially what Hillary Clinton was attacking Trump for in that famous 2016 debate when she accused Trump of not paying his taxes. And Trump fired right back saying if you want me to pay my taxes, change the tax code. Then he pointed out that she won’t because the people who fund her campaign use the same deductions he used.
Trump then won the election and made that change to the tax code, driving his detractors absolutely insane. Trump, a NYC resident at that time, actually raised taxes on himself in addition to all those wealthy political donors he called out in that debate.
Trump then went ahead and did what every Republican has said is a top Republican priority for the last 40 years. He raised the standard deduction for average filers while cutting deductions for the wealthy, making the tax code simpler and fairer. And that’s the fight Republicans should continue to fight and win with when they do. There is nothing better for working class Americans than a simpler, fairer, flatter tax system that doesn’t require advanced calculus to comply with.
Robert Hornak is a veteran political consultant who has previously served as the Deputy Director of the Republican Assembly Leader’s NYC office and as Executive Director of the Queens Republican Party. He can be reached at rahornak@gmail.com and @RobertHornak on X.
