SALT in Tax Reform’s Wounds

Raising the $10,000 cap on the state and local deduction is bad tax policy and could be bad politics too

WSJ editorial. Excerpts:

"Doubling the SALT cap for joint filers would reduce federal revenue by $175 billion over 10 years compared with extending the current cap, according to the Tax Foundation. That would claim about 5% from the amount that Republicans will need to extend the 2017 law’s expiring lower income-tax rates under static-revenue rules.

"Capping SALT was a consensus cause among fiscal conservatives for years before the 2017 law."

"The unlimited SALT subsidy was an incentive for spendthrift governors to raise taxes, since a voter in the top tax bracket who paid $100 more to the state could turn around and get $37 back from Uncle Sam."

"Only about 10% of filers now itemize deductions, thanks to the 2017 reform that lifted the standard deduction. This year that standard deduction is $30,000 for married couples. If the SALT cap were doubled, about 74% of the gains would go to households earning more than $200,000 a year, according to the Tax Foundation.

Raising the SALT cap would also be a slap against the residents of low-tax states, who have less to deduct. At least 25 states—nearly all Republican-led—have cut their income taxes since the 2017 reform."

"restoring SALT would reduce the political incentive for the Democrats who run New York, New Jersey, Connecticut, California and other high-tax states to cut their taxes."

"SALT devotees are asking for a tax break for high earners at the expense of everyone else."