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Democrats Demand SALT Deduction Cap Eliminated for Blue State Millionaires

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Ridgewood NJ, from Politico , “Nearly every Democrat in New York’s House delegation said Tuesday that they won’t back tax hikes to fund President Joe Biden’s infrastructure package without a full repeal of the $10,000 cap on state and local tax deductions.”

Under Trump SALT deductions were capped at $10,000. Democrats have said for decades that taxes the rich don’t pay their “fair share” of taxes, but now they want to bring back a deduction that almost exclusively benefits millionaires and billionaires in their high-tax blue states.

Nancy Pelosi grouses that eliminating the deduction is “devastating to California” with its 13% income tax. Or consider New York, which has just raised its income tax to 15% on millionaires. With the SALT deduction, Michael Bloomberg could deduct 40% of those tax payments, meaning he would only pay 9% with the other 6 percentage points effectively paid for by out of staters. Now he has to pay ALL 15%.

A group of Democratic governors from high tax states – including Andrew Cuomo, Gavin Newsom, J.B. Pritzker and Ned Lamont – signed a letter begging Biden to bring back SALT to their millionaire and billionaire residents/donors. They pouted that getting rid of the deduction “increases taxes on hardworking families.” Wrong. About 60% of the benefits from the SALT deduction go not to the working class, but blue state millionaires. These are the very rich people who Biden and his pals say should pay MORE taxes.

Blue state Dems have long realized that losing the SALT deduction is vastly accelerating the stampede of the rich to low-tax states like Florida from high-tax states like New York. Now the same liberals who argued for decades that taxes don’t affect behavior are seeing it in warp speed right before their eyes.

So now behind closed doors the Democrats are trying to find a way to bring back a loophole for the super-wealthy.

The chart below shows the states with the highest taxes, including New York, Vermont, Minnesota, New Jersey, Connecticut, and Illinois.

3 thoughts on “Democrats Demand SALT Deduction Cap Eliminated for Blue State Millionaires

  1. Nice try, but removing the SALT limitation is not a loophole for “super wealthy”. There is a huge difference between Mike Bloomberg level of wealth and a super hard working professional whose main source of income is mostly W2 wages and then saving as much as possible to standard type retirement accounts. Talking about this as a ‘millionaire / billionaire’ thing, I think it’s disingenuous. I bust my ass at my job, even more now, and my work has a direct and very positive impact on my company’s bottom line. Between tuition and the opportunity cost of going to graduate school, I invested over $200k in a graduate degree, and I don’t feel shame in saying I have a right to earn a return on that investment. I consider myself blessed, I am indeed well compensated, but this is all my own hard work. It’s not smart to have any tax regime that punishes innovative and hard working people. Which is what it feels like in NJ right now.

  2. Excellent point. Why should the hard working people of other states subsidize the insane tax system of NJ?

  3. The main reason for salt deduction is competitiveness of states. You can clearly see it in migration stats. After it was eliminated, outwards migration in NJ for example went up. Putting deduction back in place would help level the playing field a bit.

    This inevitably leads to a moral argument. I.e. taxpayers from other states supporting blue states, etc. Keep in mind that these arguments lead nowhere.

    Everyone somewhere, somehow supports everyone else. Agricultural states support manufacturing states, oil states support the rest, big economy hubs like NYC support the whole country with financial infrastructure, etc etc. There’s nothing moral here to discuss. Just hard negotiation between representatives from all states.

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