Jerry Nadler’s Double Taxation Lesson

He unwittingly calls to abolish the corporate and estate taxes

WSJ editorial.

"Democrats from high-tax blue areas are asking President Biden to restore an unlimited federal deduction for state and local taxes (SALT), and here’s New York Rep. Jerry Nadler’s pithy pitch on Twitter : “No one should ever be taxed twice on the same income. It’s not fair and it’s not just.”

Deal! Quick, shake on it, before he realizes what he’s saying. Conservatives have been making arguments about double taxation for years. We’re glad to hear Mr. Nadler thinks the death tax and the corporate-income tax are unjust and should be repealed. Also, it’s nice to see him pledge never to vote for any sort of wealth tax.

This is a joke, alas. In reality Mr. Nadler is simply trying to reframe the unlimited SALT deduction, which is a tax break for wealthy urbanites mostly in New York and California, as a matter of justice. What makes his complaint especially unpersuasive is that it involves overlapping taxes by different bodies: The federal government has an income tax. So does New York state. So does New York City.

This kind of thing happens all the time. Property taxes are assessed by cities, counties, school districts, fire districts and the like. The federal government taxes gasoline, as do states. When you buy a pack of gum, by Mr. Nadler’s logic, the local sales tax should be deducted on the receipt before the state sales tax is calculated.

More pernicious double taxation is when the same level of government takes multiple bites, which is what business profits face. Say you own part of a corporation that makes $1. Setting aside deductions and whatnot, the federal corporate tax on that money is 21%, and Mr. Biden wants to make it 28%. When the profits hit your tax return, the feds take another cut, with a top rate of 23.8% on capital gains or qualified dividends.

That’s not all, as they say on TV. Imagine that instead of celebrating the remaining fruits of your work by taking the family on vacation, you prudently save and reinvest. If you die after managing to accumulate a sufficient sum, your reward is to have the feds swoop in again to assess the estate tax, with a rate of 40%. As if three mouthfuls of that original $1 weren’t enough, Sen. Elizabeth Warren wants an annual wealth tax, with rates up to 6%.

Mr. Nadler’s interest is something else entirely. Since 2018, the SALT deduction has been capped at $10,000. If the unlimited deduction were restored, according to a report last year from the left-leaning Brookings Institution, 96% of the benefits would go to taxpayers in the top quintile, with “essentially no benefit to the middle class.” When the Tax Foundation crunched the 2016 data, the SALTiest place in America was Manhattan, which Mr. Nadler partially represents, with deductions of $25,627 per filer.

Uncapping the SALT deduction would subsidize and induce higher state and local spending, since legislators and county councilors could impose a tax of $1 without inflicting $1 of pain on their residents. It’s bad policy, and a sop to Mr. Nadler’s constituents. If he’d really like to worry about double taxation, the corporate revenue code is the place to look."