SALT Cap Here to Stay?

[Joby]

Ah yes, the battle between the urban progressives and the New New Democrats is upon us. When it was all about the "Fight against Fascist Donny T" the Dems could ignore this battle but now the intramural squabble is on. Time to bust out some popcorn. Let's get ready to rumble! Someone get Nancy some Tums now...

Did anyone actually believe the Democrats when they ran against the GOP tax plan a few years ago?

Democrats circa 2018: "The GOP tax plan screws the middle class! Vote for us and we'll restore the full SALT Deduction!!!"

Democrats win the House almost entirely due to flipping high-income seats in high-tax blue states

Democrats circa this week: "Psych! No cut for you! Time to pay for America's historic sins!"

I just want to wish Representatives Antonio Delgado and Mikie Sherril luck in the next midterms! And I actually mean that sincerely, because they're going to be fighting an uphill battle not only against the GOP but also the progressives who view lifting the SALT cap as "enforcing white supremacy" (which has replaced "socialism for the rich" in progressive parlance).

Biden Disappoints SALT Democrats, Setting Up Headache for Pelosi

President Joe Biden’s decision, in a raft of individual tax proposals released Wednesday, to leave in place a cap on state and local tax deductions threatens to complicate congressional negotiations over his sweeping new social-spending program.

www.bloomberg.com

 

[Joby]

I give the New York Times Editorial Board credit for their stance on this issue (not saying I agree), as they came out against the SALT deduction in its entirety just a few days ago.

New Yorkers, who pay higher taxes than most Americans, get more extensive and higher quality public services. Residents of other states choose lower taxes and less government. Federal tax policy should provide consistent support for either choice.

This board historically has opposed the elimination of the federal subsidy. But the rise of economic inequality has increased our focus on the distribution of taxation and led us to a different conclusion: Instead of eliminating the SALT deduction cap, Congress should eliminate the deduction.

Opinion | Why Are Democrats Pushing a Tax Cut for the Wealthy? (Published 2021)

Restoring an unlimited federal tax deduction for state and local tax payments is bad politics and bad policy.

www.nytimes.com

Not sure how that's going to play in the Hudson Valley or over the river in Jersey but hey, at least they're consistent.

EDIT My Apologies for not including this option in the Poll (Eliminating the Deduction). I had read the editorial but honestly did not consider this a viable option. An oversight on my part and I apologize.

 

[VySky]

Cap should stay. That’s one reason why I left CA. You want to live there and elect morons then pay the price of admission

 

[ttwtt78640]

The $10K SALT (deduction) cap is limiting a federal income tax (FIT) break for “the rich”. If a given state taxes at a rate of 10% then the cap would only apply to those with incomes over $100K.

Itemized FIT deductions (in general) favor those with higher incomes. A $10K FIT deduction is worth $1,500 for someone in the 15% tax bracket, but is worth $3,900 for someone in the 39% tax bracket.

 

[SimpleTom]

The $10K SALT (deduction) cap is limiting a federal income tax (FIT) break for “the rich”. If a given state taxes at a rate of 10% then the cap would only apply to those with incomes over $100K.

Itemized FIT deductions (in general) favor those with higher incomes. A $10K FIT deduction is worth $1,500 for someone in the 15% tax bracket, but is worth $3,900 for someone in the 39% tax bracket.

The SALT cap is a marriage tax and I am against marriage taxes.

The problem with your example is that a married couple making $50k each has the same cap.

The average atarter home is $240k, in a 1.2% tax district there goes $2.9k of the deduction, two cars will add $500. So now with a 6% state tax and 2% in local taxes, a married couple making $42k each are apparently rich.

What if they upgrade to a decent home in a good school district, or they just got some appreciation on their home? If their house goes up to $400k they will hit the SALT cap at about $30k each.

As for your statement on "itemized FIT deductions" the same goes for standard deductions.

 

[ttwtt78640]

The SALT cap is a marriage tax and I am against marriage taxes.

The problem with your example is that a married couple making $50k each has the same cap.

The average atarter home is $240k, in a 1.2% tax district there goes $2.9k of the deduction, two cars will add $500. So now with a 6% state tax and 2% in local taxes, a married couple making $42k each are apparently rich.

What if they upgrade to a decent home in a good school district, or they just got some appreciation on their home? If their house goes up to $400k they will hit the SALT cap at about $30k each.

As for your statement on "itemized FIT deductions" the same goes for standard deductions.

Your example still shows that in very high tax states a two income couple would have to make over $84K to be impacted by the SALT cap. To take advantage of any itemized deductions one must have their total itemized deductions exceed the standard deduction ($24,800 for a married couple).

The standard deduction is often the only deduction that lower income folks are able to claim.

Review IRS Federal Standard Deduction for Previous Tax Years

Standard Tax Deductions for Back Taxes. The eFile Tax App Will Apply the Standard or Itemized Deductions For You When You Prepare.

www.efile.com

 

[SimpleTom]

Your example still shows that in very high tax states a two income couple would have to make over $84K to be impacted by the SALT cap. To take advantage of any itemized deductions one must have their total itemized deductions exceed the standard deduction ($24,800 for a married couple).

The standard deduction is often the only deduction that lower income folks are able to claim.

Review IRS Federal Standard Deduction for Previous Tax Years

Standard Tax Deductions for Back Taxes. The eFile Tax App Will Apply the Standard or Itemized Deductions For You When You Prepare.

www.efile.com

Unless they have medical bills, or a home mortgage...

 

[SimpleTom]

Your example still shows that in very high tax states a two income couple would have to make over $84K to be impacted by the SALT cap. To take advantage of any itemized deductions one must have their total itemized deductions exceed the standard deduction ($24,800 for a married couple).

The standard deduction is often the only deduction that lower income folks are able to claim.

Review IRS Federal Standard Deduction for Previous Tax Years

Standard Tax Deductions for Back Taxes. The eFile Tax App Will Apply the Standard or Itemized Deductions For You When You Prepare.

www.efile.com

Just to be clear, I am against all deductions. I favor an all credit model but pretending that you have to be rich to hit the SALT cap is well... rich.

 

[ttwtt78640]

Just to be clear, I am against all deductions. I favor an all credit model but pretending that you have to be rich to hit the SALT cap is well... rich.

You have to be fairly well off to have your total deductions exceed the standard deduction amount ($24,800 for married couples).

 

[SimpleTom]

You have to be fairly well off to have your total deductions exceed the standard deduction amount ($24,800 for married couples).

We started at rich and now we are down to fairly well off...

The average mortgage on a starter home is just under $200,000 and the average rate is about 4%. That is $8,000 of that $24,800. The SALT limit is another $10k. Suppose they tithe or have excess medical expenses... $6,800 is not a large gap to bridge.

These are not living large people. My neighbor has about $14,000 in MID and she is a registered nurse married to a carpenter. She tithes, and hits the SALT cap.

 

[ttwtt78640]

We started at rich and now we are down to fairly well off...

The average mortgage on a starter home is just under $200,000 and the average rate is about 4%. That is $8,000 of that $24,800. The SALT limit is another $10k. Suppose they tithe or have excess medical expenses... $6,800 is not a large gap to bridge.

These are not living large people. My neighbor has about $14,000 in MID and she is a registered nurse married to a carpenter. She tithes, and hits the SALT cap.

Yep, some folks will have to pay personal FIT with $4T+ in annual federal spending.