The SALT Subsidy

From Representative Jerry Nadler, who represents parts of New York City:

“Taxed twice on the same income”: This is an argument sometimes brought out in favor of the state and local tax deduction, or SALT. But it doesn’t really hold water.

It’s not problematic for different taxes, funding different services, to use the same denominator. County and municipal governments often tax the same property, for instance, and local and state governments often impose sales taxes on the same transactions. In these cases, requiring one tax to be deducted before the other was calculated would just be silly, because legislators would simply increase the second tax’s rate enough to offset the loss, leaving everything back where it started.

With SALT, though, there’s no simple solution like that — federal tax rates apply across the entire nation, while state and local taxes vary from place to place. A federal deduction subsidizes places with high taxes by collecting less federal revenue from those places, while any overall rate increase will hit the whole country. Blue-state lawmakers like Nadler like SALT, and want to get rid of the cap on it, because they want that subsidy, not because it’s fair tax policy.

Here’s an idea. If being taxed “twice on the same income” is such a problem, maybe New York State and New York City — which taxes income separately from the state — should offer deductions for federal taxes, rather than the other way around. They can allow deductions for each other’s taxes, too, while they’re at it.

To be clear, multiple taxation can be a problem sometimes, especially when similar activities end up being taxed differently because they’re hit with different layers of the system. But that’s not what’s happening here.