Among the scores of lies Republicans in Congress are spewing about Trump’s budget bill, there is one that has gone virtually unchallenged by congressional Democrats. First the lie, then the why – those feckless Democrats don’t touch it.
The lie is about the S.A.L.T. deduction, the federal income tax deduction for state and local taxes the federal taxpayer has paid. First what it is. Then the justification for continuing to drastically limit it.
Senator Pat Moynihan
Before Trump’s first term tax abomination (“Trump Tax 2017”) federal income taxpayers did not have to pay taxes on so-called “income” that never “comes in” because it is taxed away from them by state and local governments on the same gross income that the feds taxed. In most cases that money was not even temporarily received by the taxpayer, because it was withheld before the taxpayer got paid, as state laws required it be withheld. The basic assertion that the S.A.L.T. deduction is actually a deduction from income received is false. It is, or was, a correction to double taxation – and was almost completely eliminated by Trump Tax 2017 as a way of punishing high tax coastal states that by and large skew Democratic. These states have robust social welfare, healthcare and education programs for lower income residents.
Republicans lie that the S.A.L.T. deduction is unjustified, saying it makes people in fiscally responsible low tax states subsidize people in profligate high tax states, like New York, New Jersey, California and Washington.
The facts and truth about this were taught to me in person by Senator Pat Moynihan when he was trying to help a floundering Senate campaign of another Democrat and its clueless issues director (me). He explained and documented that those high tax states, and especially New York, were paying far more in taxes to the federal government than they and their residents received back from the feds. And that those low tax states were sending the feds far less than they received and effectively were being subsidized by taxpayers in the liberal high tax states.
That lesson was given in 1992 and in 2023 deep blue New York, California, Massachusetts, New Jersey, Delaware, Connecticut, Washington and Rhode Island respectively paid $89 billion, $78B, $46B, $70B, $11B, $5B, $55B and $3B more than they received from Uncle Sam. Deep red West Virginia, Oklahoma, Alaska, Montana, Iowa, Idaho, Indiana and South Dakota respectively received $20 billion, $18B, $11B, $6B, $6B, $6B, $4B and $1B more than they paid the federal government. Resulting in a subsidy more than fully paid for by the taxpayers in those blue states.
Representative Mike Lawler
The ongoing trivial debate about the S.A.L.T deduction among Senate and House Republicans (since the Democrats can’t really do anything about the bill) arises because there are a few stray Republicans in the high tax states, like Representative Mike Lawler in N.Y. 17, a wealthy district that includes a large part of affluent Westchester County. Mike and similar Republicans in those blue states know their constituents are being heavily double-taxed and may vote them out in 2026 if there is not some effort to redress this aspect of Trump Tax 2017. The fixes that Mike and his pals are proposing amount to bandaiding a serious gunshot wound.
They propose increasing the current annual S.A.L.T. deduction cap from $10,000 to $40,000 while eliminating even that tiny relief for taxpayers with gross income over $500,000. A taxpayer in New York City paying $150K in S.A.L.T. would still have to pay federal tax on $110K in taxes already paid to NYC and NYS and lose even that minor relief if they exceed the magic $ half million figure where Republicans think double taxation is justified. After all, they explain, people in that position have themselves to blame for living in states that provide luxuries like expanded Medicaid, nutritional assistance and pre-k to their residents. Things that low tax Republican states do not provide despite being subsidized by the high tax states. And those same Republicans are straining to enact Trump Tax 2025, that will reduce Medicaid, SNAP and various educational programs in all states.
Zohran Mamdani
Why have your heard little about this from the Democrats in Congress? Because they are afraid to be seen as having supported a tax break for the rich. In truth a limitation on double taxing the people most responsible for paying for all those social, nutritional, healthcare and educational programs for the lower income residents of their states. Congressional Democrats also fear the wrath of progressives like Zohran Mamdani (the subject of HL 201) who not only has not said a word about increasing the S.A.L.T. deduction but proposes an additional NYC tax on the most heavily taxed, and therefore the most heavily double-taxed people in the United States.
Responding to the comments posted so far: The S.A.L.T. example I gave was from just one of the many iterations of the provision found in various iterations of the bill – both House and Senate versions. If the atrocious bill passes the House, as expected, it will include the final and effective version of the S.A.L.T. deduction tweak and at what level of income it either stops, tapers or is completely eliminated. As for the praise for Murkowski’s masculine defense of her state, I strongly disagree. She and Collin’s take turns as biggest hypocrite and previous HL posts have so commented , eg, HL 92 ” Susan Collins Says Trump Has Learned His Lesson – Have Maine Voters Learned Theirs?” This time Murkowski wins but she has said something that I’ve never heard before, calling the bill she just voted for and effectively provided the margin to pass, a bad bill that ” I don’t like” usually the line involves some variation on the theme that ” the bill is not perfect” or ” the perfect shouldn’t be the enemy of the good” but disarmed by her own hypocrisy and embrace of the bad and evil, she had a moment of honesty. Moreover, by selling her vote and conscience (assuming she has one) she’s added $billions to the deficit Alaska already had between what it sends to the federal government in taxes and what it receives back as discussed in HL 202.
Thanks for this very illuminating analysis of SALT , especially the double taxation analysis: Taxation on income never received. Curious that Trump moved to Florida to avoid double taxation. Always thought the intent was punitive but perhaps the real goal is to encourage high income folks to leave the northeast and California thereby crippling the social programs that common decency and morality would require. Oops forgot. He doesn’t care.
It is to be hoped that Mike Lawler and the other suburban Republicans in the House will make trouble for Maga Mike Johnson and threated to tank the BBB if the S.A.L.T. concessions are not allowed. Lisa Murkowski modeled how tough negotiating can get stuff for your state. And Thom Tillis showed us how the the house of cards might be toppled,… if only Josh Hawley had been truly masculine and voted against the cuts to MEDICAID as he said he would. (rf Josh Hawley: MANHOOD: THE MASCULINE VIRTUES AMERICA NEEDS). Rand Paul is more manly than Josh, and likely Susan Collins as well. Murkowski did some masculine bargaining for her state. Eat dirt and die, Josh.
Lloyd:
In your example, isn’t someone who is paying $150k in SALT taxes likely to have a taxable income in excess of $500k? Why would he be double taxed on only $110k? Wouldn’t he lose the benefit of the increased SALT exemption altogether at such income level?
I don’t understand why the increased SALT exemption doesn’t taper off after $500k, rather than completely end. Seems unfair.
Thank you