Despite Californians receiving one-fifth of all the benefits from the state and local tax (SALT) deduction, the state’s Republican congressional members seem unafraid to dump it.
The Trump administration’s proposed tax cut would have retained the SALT, which has been around since the Revenue Act of 1913 created the federal income tax. But after the Congressional Budget Office scoured the biggest tax cut in history would increase the deficit, SALT’s federal tax policy revenue cost of $96 billion in 2017 went on the chopping block, because it predominantly benefits a few Democrat-controlled states.
The non-partisan Tax Foundation calculated that the SALT deduction was expected to cost the US. Treasury $1.3 trillion over the next decade. California expects 19.6 percent of the deduction, or $255 billion, versus an average of just 1.6 percent, or $23.6 billion for the other 49 states. The deduction shelters a stunning 9.1 percent of Californian’s adjusted gross income, versus an average of 4.5 percent for the other states.
President Ronald Reagan called SALT “the most sacred of cows” during his battles to pass tax cuts in 1981 and 1886. His administration argued that the tax deduction is highly regressive, since it is mostly claimed by wealthy taxpayers and subsidizes higher taxes and potentially wasteful state and local spending, and because it involves a transfer from lower-income to higher-income states. Although his Secretary of the Treasury called SALT a “dragon” to be slayed,” Democrat majority control of the Senate and House forced President Reagan to retain SALT.
California’s 39-member Democrat Congressional delegation lined up behind House Minority Leader Nancy Pelosi on November 2 to call the 14-member Republican California delegation disgraceful for going “straight down the line like lemmings to the sea to vote against the interest of their constituents, against the interest of our state.”
Democrats claim that SALT stimulates the economy by encouraging public infrastructure spending, and the National League of Cities recently estimated that SALT increased public spending by 2 percent. The League’s analysis found that any spending reductions from eliminating SALT “would appear to be concentrated in high income communities where most itemizers now live.”
The Democrats’ aggressive tactic of trying to shame California Republicans may be causing a backlash after Gov. Jerry Brown’s called Republicans “freeloaders” earlier this year for not supporting the largest state income and gasoline tax increases in history.
California Republicans are planning to run against taxes in 2018, after successfully qualifying a ballot initiative to repeal the gas tax. Republicans may receive some short-term grief from the rich for not supporting SALT, but it is the Democrats that will own raising the state’s taxes to record levels.
All 14 members of the House Republican Caucus voted for the Trump budget plan on October 26 that included $1.5 billion in proposed tax cuts, while none of the 39 Democrats supported the bill. Now that the that tax bill is under consideration, four Republican Caucus members have said they support dumping SALT, four say they are concerned about potential impacts, and six have not made any comment. But none of Republican members is actively fighting to save SALT.
COMMENTS
Please let us know if you're having issues with commenting.