SALT Cap Objections Ring Hollow

Less than eight years ago, Congress enacted the sweeping Tax Cuts and Jobs Act. Now a cadre of House Republicans has threatened to let key TCJA provisions expire unless Congress agrees to quadruple—from $10,000 to $40,000—the amount of state and local tax (SALT) that filers can deduct from their taxable income, thus reducing their final tax bill.

The GOP lawmakers claim the SALT cap has “harmed” their constituents, many of whom pay well more than $10,000 in state and local taxes. But these objections ring hollow. Most of their constituents still came out ahead under the TCJA, despite the cap. And in many cases, the loudest critics were among those who helped drive the growth of state and local taxes in the first place.

Operating with a slim House majority, GOP leadership agreed to the extortive demands. But none of the 53 Republicans in the Senate comes from California, New York, or New Jersey, the epicenters of SALT agitation. On Monday, their conference rejected any changes to the SALT cap in their own comprehensive tax proposal.

As my colleague E. J. McMahon noted in October, the purported “damage” from the SALT cap has been grossly overstated. Even with the new limit on SALT deductibility, “high-tax” New York paid less to D.C. in taxes in 2018 than it did in 2017, the year before the cap went into effect.

The SALT cap raises some thorny questions about double taxation, but the so-called SALT caucus is less concerned with federalism or sound tax policy than with bringing home the bacon for their voters. Expanding the cap would deliver thousands of dollars in cash benefits to already well-off households.

In their braying over the cap, SALT defenders conveniently overlook the many benefits of the Tax Cuts and Jobs Act—chief among them, the more than doubling of the standard deduction, now $30,000 for married couples. For many households, that change more than offset the SALT deduction limit by making itemization unnecessary.

TCJA slashed federal income tax rates, targeting the biggest cuts to middle-class households. A married couple with taxable income of $150,000 saved about $4,000 from these rate cuts alone. The law significantly expanded the Child Tax Credit, a dollar-for-dollar reduction in federal income tax bills. It doubled (from $1,000 to $2,000) the amount for each child and raised eligibility to families making well over $300,000.

The TCJA also rolled back the Alternative Minimum Tax, a lesser-known provision of the tax code that had a major impact on the constituencies represented by the SALT caucus. For example, looking at New York’s 2nd Congressional District on Long Island in 2017, 81 percent of the tax filers with incomes between $200,000 and $500,000 paid the AMT. In 2022 a mere 2 percent in that income range did so.

Put simply, if TCJA hadn’t slashed rates, doubled the standard deduction, expanded the Child Tax Credit, and peeled back the AMT, the SALT caucus might have had cause for complaint.

State and local spending has a determinative effect on how much state and local tax Americans pay. And on this score, no subset of the SALT caucus has more to explain than its Empire State members, who complain about the high cost of state and local government, on the one hand, yet chase endorsements from the public-employee unions responsible for much of it, on the other.

Most of New York’s state and local government spending goes to just two areas: the state and local share of its costliest-in-the-nation Medicaid program and its costliest-in-the-nation public schools.

New York’s state government spending, already trending up over the last decade, has risen more than twice as quickly as inflation since 2019, owing chiefly to the growth of Medicaid and state school aid. Some of the same SALT-concerned Republicans have their fingerprints on that fiscal mess, having supported and even cheered for Albany’s spending explosion during their stints in the New York State legislature (and done nothing substantive to restrain or reform spending).

Even today, New York SALT caucus members are still encouraging Albany’s spending from afar. Three SALT caucus members—Nicole Malliotakis, Andrew Garbarino, and Nick LaLota—signed a letter to House leadership refusing to support “any reduction in Medicaid coverage for vulnerable populations.”

Decades of generous federal aid encouraged Albany to boost its side of the Medicaid spending ledger. Federal cash aside, it’s the biggest part of New York’s state government spending. Today, Medicaid covers more than a third of the population, and hundreds of thousands of people get paid by a heavily abused “home care” program. Putting the bulk of the program off-limits for structural reform shows how unserious SALT caucus members are about the state tax burden from which their constituents need relief.

Asked about SALT deductibility as he ran for reelection to the State Assembly in 2018, Long Island representative Garbarino, now a SALT caucus co-chair, raised an important point about the overall tax burden coming from state and local government.

“How can I point fingers at Washington while Albany isn’t doing their job?” he asked.

It’s still a good question.

Photo by Kevin Carter/Getty Images