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SALT Deduction
I’m from New Jersey, and I’d benefit from the SALT cap proposed by the House. And my Congress-critter – Republican Tom Kane Jr. – supported the SALT cap. But, in my opinion, it’s a scam and a way for high-tax states like NJ to have their profligate spending funded by the rest of the country.
As I understand it, the SALT deduction allows taxpayers to deduct the taxes paid to state and local governments from their federal taxes. Currently, that deduction is capped at a maximum value of $10,000. That might seem like a lot to many Americans. But I’m a regular, working-class guy who owns a little house in NJ. My property taxes alone are about $14,000. Then there is the ancillary stuff: sewage, garbage, etc.
By way of comparison, my Mom in PA passed away a coupl’a years ago and I inherited her house. I remember looking at the property tax bill for her house… $675… and remember being confused. $675??? Is that per month? No. That’s just what property taxes look like outside NJ.
Anyway, NJ has a spending and taxation problem. But they sell the high taxes this way: “Hey. You have to pay taxes to someone. You can pay the Feds or you can pay NJ. At least if you pay NJ, your money stays close to home instead of going to who-knows-where.” But with the deduction capped at $10,000, residents of high-tax states like NJ are forced to bear the consequences of their free-spending states.
In my opinion, the proper way to address the high-tax/free spending in states like NJ is to face that spending head-on, streamline government, and reduce taxes. But, apparently, my Congressman and his supporters would rather not fight that fight and have the residents of low-tax states subsidize the profligate ways of the big spenders. So much for fiscal conservatism.
I can only hope that the Senate trims the SALT deduction approved by the House. That deduction cap – $40,000 for those earning less than $500,000 per year – is a slap in the face to the rest of America. And even though it benefits me, it’s manifestly unfair to the rest of America.
Published in General
One of the arguments for the cap initially was: States would cut their spending under pressure from citizens. To that one can safely say HAH!
Knowing some few very high echelon taxpayers, I observe it’s the principle of the thing to them, not the actual $s – no limits on any deductions and they will squawk over getting every deduction, regardless of whether it’s fair or they “need” it. (Bill Clinton and his “charity” deduction for underwear?!) And they don’t move out of State over property or overall State taxes – they move for the whole mess of the State if they are not otherwise tied by family, business, age, nostalgia or other subjective factors.
We did move from CA when we could, knowing as wage earning taxpayers we had targets on our back and taxes would never go down and we could not move the income to non-tax jurisdictions to avoid tax. We did use tax as one filter for where to move to, for the same reason.
I want spending cut and less spending. I’m not interested in making the Pritzker and Newsome and Pelosi families happy about deducting the State taxes they pay on income they’ve not found a way to shift.
For that matter, mortgage-interest deduction is the same kind of deal. High-cost states get higher deductions, which end up subsidized by low-cost states.
The SALT deduction should be eliminated. Taxes should always be flatter with fewer deductions/credits. FYI, property taxes in Texas are about 2% of market value, which is a big chunk of change.
People have already forgotten that the cap on SALT was a trade-off for an increase in the standard deduction (24K in 2018 for Married filing Jointly, 29.2K last year) which made itemization unnecessary for the majority of taxpayers. Prior to 2018, about 30% of tax returns itemized deductions. By 2020 it had fallen to less than 10%.
Now they want to bump the SALT back up, but not reduce the standard deduction. Which makes the SALT deduction a massive tax giveaway to the rich (which I thought Democrats were supposed to be against – why aren’t we hearing from them?).
A basic principle of tax policy that too few people understand is that itemized tax deductions only have value to the extent they exceed the standard deduction. For example, If you had $35k in itemized deductions in 2024, you didn’t reduce your taxable income by $35,000, you reduced it by $5,800, because you would have gotten the $29,200 anyway. So unless you have very high income to support high deductions, there’s
nolimited benefit to increasing SALT.Side note: I have a property tax bill for my parents house from the late 1950s. The gross tax was something like $28. The bill is stamped “paid under protest”.
Edit: Top marginal tax rate in 2024 was 37%. Which means a $5800 reduction in taxable income is worth $2146 in reduced taxes, and that rate only applies for incomes > $600k, otherwise the “savings” are lower. If you’re “spending” $35,000 to save two grand in taxes, you’re not very good with money.
But I’m sure New Jersey makes up for that by having no sales tax, right? Or I bet your state income tax rate is super low. ; )
You are a funny guy! I wish. Used to be, NJ could boast of a very low gasoline tax. But those days are gone.
Slow learner? You don’t seem to have absorbed the reason why it’s different, or even absorbed the info in the OP.
We Floridians don’t like having to pay up to cover you folks. Boo!
Totally agree.
And I am very glad you included Newsom in the mix of reptilian monsters driving us into continued influx of “new citizens we must support” at a huge cost to tax payers.
I noticed on one of the dog rescue sites which I frequent that late in April, one of the women who owns 3 big dogs was asking for help as she can’t afford to feed them. (More month than money.)
I have helped other elderly people in such circumstances. But she is a flaming lib who feels anyone else other than Newsom is Hitler.
We citizens had already put through legislation that the state itself cannot put more onerous increases on income taxes without our approval.
So what does Newsom do to offset the huge deficit we have due to his treating millions of illegals like royalty? He ups the tax per gallon on the fuels we purchase so that trucks can deliver groceries and that we consumers can get to the stores. I wanted to tell the dimwit Dem that maybe if we weren’t paying $ 1.28 per gallon at the pump, then maybe food wouldn’t be so expensive. Then she could afford to feed her own dogs.
While we non-libs implored his Majesty Gavin to have a moratorium on gas taxes while eggs & other normal grocery items had skyrocketing prices, he decided to raise the fuel taxes by 60 cents a gallon!
If we kill the SALT deduction and otherwise make sure high state tax residents feel the pain, many or most will ultimately move out, then the blue state populations will soon be comprised entirely of unionized government employees and welfare/transfer payment-dependent persons. It’s a bold strategy, Cotton, but seems like we are headed that way.
Maybe I have a huge misunderstanding about California. I am under the impression that even if there were no state costs due to the illegal aliens, you would still have very high gasoline taxes because the Democratic majority wishes to dissuade motorists from burning gasoline. Have Californians gotten over their global warming hysteria, and I haven’t heard about it?
The motivation is higher taxation to fuel grander grift. The pretext is climate change, the prevailing original sin of convenience to fuel the grift. If it costs their subjects $50 to get to work or $1000, it matters not. No voter ID.
The official explanation for the tax on gasoline, which was imposed on us quite a while before the more recent Climate Hysteria Nonsense raised its head, was that these monies would pay for roads.
Yet our roads are abysmal. I do not know if the roads are a mess due to the taxes on gas being diverted over to other matters, or whether there is corruption because the mafia is involved in the bidding for road construction or what. Plus the usual corrupt officials skimming off the top of the funds, either directly at the state level, or as the monies get handed out to counties. It is probably a combination of the three factors.
I wonder what you think abysmal is. My sample of California roads is small, based on travel to, from, and in San Diego County. and the roads have ranged from OK to very good. For abysmal roads I’d stay home in Michigan, though even some of those have improved in recent years. I could name cities that have had some terrible roads for long or short periods over the past 45 years. But where should I go to find them in California?
The worst roads we drove on were in New Orleans for the Meetup. After the first day, we took Ubers the rest of the time because besides road conditions, parking was difficult. The locals filled us in about the road conditions, and why they were the way they were. As you can expect, the answer was political corruption . . .
@randyweivoda, want to add anything?
Why are the roads bad in SoCal and New Orleans, where they don’t have to contend with a freeze/thaw cycle?
I thought SoCal was fine. New Orleans is built on a swamp and subsidence is a big problem. Same with Houston.
We’ve all seen rough streets that were way overdue for repair, but New Orleans was shocking for its decrepitude. One of the local Ricochetti commented that New Orleans had at least one 24-hour tire store because so many people wreck their tires on the horrendous potholes. I think the local Ricochetti were in universal agreement that the mayor and city council were useless.
Again, all of this shows why a federal income tax is an abomination. Just another distortion. The federal income tax, a direct tax, is a complete violation of the original federalist system and the root of all Progressive evils that have bedeviled the country for well over a hundred years.
The federal income tax should be totally eliminated. There is no way to fix it and have a reasonable country with any sort of freedom. As it is, federal spending will in the not too distance future result in something in America akin to the Weimar Republic. The difference will be that that was imposed upon Germany, whereas in our case, we will have done it to ourselves.
We should go back to the original tax structure allowed in the Constitution prior to the 16th Amendment (which should be repealed). That is, no direct taxes (I don’t care what Bret Kavanaugh says about direct and indirect taxes, because he has no idea what he is talking about-he elaborates historical errors and manufactured definitions done for political expediency and confuses that language with the clear meaning of th Constitution.
States should be dunned a per citizen amount to cover the federal budget, and be left to decide for themselves how they want to raise the revenue.
This would give the States a direct interest in the Federal budget and engender a check on the profligacy of the Feds. It would also discourage sanctuary states from trying to game the Congressional districts by protecting illegal immigrants as each of those illegal immigrants would add to the tax bill of the state. As part of the repeal of the 16th Amendment, it should be made crystal clear that tax dollars flow only from the States to the Federal government, not vice versa. This would again encourage federal fiscal restraint, imposed by the States. The State could keep their money and apply it to the programs they wanted, without having to launder the funds through the federal government. This would correct a vast number of ills in our nation, not least of which would be a discussion over SALT deductions. The whole question would be moot.
No one thinks in these terms, at all. Everyone should be thinking in these terms. Elimination of the federal direct income tax. is a critical and urgent necessity for the economic viability of the nation.
I would encourage Ricochetti to take up the issue and consider it seriously. Unless of course you want your children to suffer, and their children, and their children’s children, whose wealth we are squandering as I write, which squandering has no end in sight. It will continue until it can’t, (the Herb Stein rule-something that can’t go on forever, won’t), at which point it will be far to late, and irreversible.
it is also clear that the Democrats have been raiding the federal fisc with abandon to enrich themselves, Willie Sutton style, distributing federal funds to cronies who work to re elect them or themselves. Our tax dollars are being stolen by pols while citizens struggle. Allowing this to continue could literally wipe out the American economy within the term of a single president, if the likes of Biden, without the senility, happens to gain power.
Our federal government continues to make Louis XVI look financially prudent. Apres nous, le deluge, indeed.
Because the politicians running things redirect the repair money to other things . . .
To me, property tax is the worst, even immoral. I say it’s immoral because its existance means we can never own property that’s free and clear from the government (and yes, I’m aware of emminent domain) . . .
All taxes are immoral. Having no taxes is also immoral.
Absolutely. Well put.
Can’t argue with your point at all. Property taxes are abused everywhere. THey disincentivize good governance and incentivize profligate spending as well. I would suggest that states abandon property taxes and replace them with transactional or consumption taxes only, although these can be abused as well. Taxes on financial transactions, property transactions, legal transactions, title transactions, etc. For example, some have floated the idea of paying a sales tax on property purchase, but no ongoing property taxes. Thus, when someone purchases a home, they pay a one time sales tax (the lower the better) but have no ongoing liability for property tax. A sales tax of something like 5 % would add to the cost of purchasing a home, but the absence of a property tax would make it easier to own for the longer term.
Why do you think a 5% tax on the purchase would be sufficient? Why wouldn’t it take a sales tax of 50% to do the trick? Have you run the numbers?
I would build a $10 house and then spend a million dollars fixing up, but not quite finishing.
There’s also the issue of cash flow to the municipality. A house that doesn’t change hands for 50 years doesn’t provide any revenue to the local government?
Of course I haven’t run the numbers. What do you think I am, an economist? Ask Peter Wallison. I would certainly hope that a transactional tax of 5% would be a max, and could be lower. And other transactional taxes could be used if this were not sufficient. Sane tax policy as always advocated but never enacted. Likewise government spending.
Why don’t you run the numbers? ALthough I doubt that I would belive them. If property tax is 1% of the value of a property, then a 5% tax would meet the needs if the average, or perhaps the median turnover life of a piece of property were 5 years. That is probably not the case, but even if there were a shortfall between what is collected between property taxes and a single tax at sale of a property, that wouldn’t discredit the idea at all. It is not a question of one single approach in rationalizing and improving tax policy. If every legal transaction had a fixed tax, down to and including a notarization. one might expect that tax imcome would be sufficient, particularlyl if goverment spending is cut drastically, which it needs to be, and many government progems dismantled in their entirety (including the massive boondogle that is Medicaid, not to mention Medicare).
I’m sure I’ve paid more in property taxes than we paid for our house when we bought it 45 years ago. A 5 percent tax paid back then to cover the next 45 years would have been a good deal, but the township wouldn’t have had the money to buy equipment for the volunteer fire department or police service if very many of us had gotten that deal.
But people pay for insurance etc too. What if local fire departments etc. were made partial beneficiaries of insurance policies, or something? But that’s not really going to work either. I don’t think there’s been a house fire where I live, in decades.