The Corner

Fiscal Policy

Democrats Looking to the Wrong Place for SALT Relief

(LIgorko/Getty Images)

First, we learned that Bernie Sanders is opposed to raising a tax. Now, we learn that he wants to partially restore a tax deduction primarily used by the wealthy.

On Sunday, Sanders said he wouldn’t support an infrastructure bill that included any increase in the gas tax. On Tuesday, Bloomberg reported that Sanders has drafted plans to partially revive the state and local tax (SALT) deduction for some taxpayers.

Taxpayers can deduct the amount they pay in state and local taxes from their incomes for their federal tax returns. The 2017 Tax Cuts and Jobs Act (TCJA) capped the SALT deduction at $10,000 as a pay-for to reduce the bill’s impact on the deficit. Very few Americans pay over $10,000 in state and local taxes. The ones who do mostly live in high-tax (read: Democrat-controlled) states and have large property-tax bills (read: They own valuable property).

According to a Joint Committee on Taxation report from 2018, 91 percent of the benefit from the SALT deduction in 2017 (the last year it was uncapped) went to taxpayers making over $100,000 per year. 42 percent of the benefit went to taxpayers making over $500,000 per year.

How Sanders exactly wants to revive the deduction is yet to be seen. In a conversation with himself that Bloomberg overheard, Sanders said, “Do I think billionaires should receive a tax break in that area? I don’t.” According to Bloomberg:

Democrats have discussed several ways to provide limited SALT relief, including offering the full deduction for a couple of years, or setting income thresholds for who can claim the tax break. The $120 billion in Sanders’s plan isn’t enough funding to cover a permanent, full repeal of the $10,000 cap on the write-off.

Fully repealing the SALT cap would cost about $385 billion, according to an estimate of Representative Tom Suozzi’s bill to restore the tax break. That means Sanders’s proposal would cover less than one-third of a complete rollback of the SALT cap for all taxpayers.

There are Democrats who could provide limited SALT relief. Two of them are Andrew Cuomo and Phil Murphy. An analysis of 2016 tax data (pre-SALT cap) by the Tax Foundation found that the SALT deduction was most lucrative as a share of adjusted gross income in New York and New Jersey. In fact, of the ten states where the SALT deduction was most lucrative, nine are currently governed by Democrats (Maryland is the only exception). If blue-state governors didn’t tax their residents so much, taxpayers wouldn’t have to write off more than $10,000 in state and local taxes on their federal returns.

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