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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.
Discussion (33)
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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.
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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.
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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.
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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.
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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. ; )
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