The editors of the New York Times come out in opposition to eliminating the cap on state and local taxes (SALT) that was introduced in President Trump’s tax reform in 2017:
The top 20 percent of American households, ranked by income, would receive 96 percent of the benefits of the change, according to a detailed analysis by the widely respected Urban-Brookings Tax Policy Center.
The primary beneficiaries would be an even smaller group of the very wealthiest Americans. The 1 percent of households with the highest incomes would receive 54 percent of the benefit, on average paying about $36,000 less per year in federal income taxes.
A tax cut with such a skewed distribution of benefits ought to be unacceptable to any politician genuinely concerned about the rise of economic inequality.
concluding:
Most members of this editorial board are paying more in federal taxes because of the SALT deduction cap. In a narrow financial sense, we would benefit from its repeal. But we believe in the broader benefits of progressive taxation, and in the necessity of concrete steps toward creating a more equal society. Members of Congress who have espoused those principles repeatedly now have an important opportunity to demonstrate their sincerity.
Opponents of the cap on state and local taxes point out that it was intended as an attack vehicle on high tax states like New York and California (and Illinois). Its intention is irrelevant to whether it is good or bad policy. I think that all deductions should be capped, frequently at much lower levels than such caps as presently exist. For example, limiting the deductibility of home mortgage interest to $1 million is rather obviously not primarily going to benefit the poor or people with middle incomes. Additionally, it’s a backdoor subsidy to realtors and real estate developers.
Marginal rates are a sideshow in the debate on taxation. The real action is in how income is calculated. Our present system of taxation at the federal level is slightly progressive. That is true because of the limit on the income on which the payroll tax is levied and the various things that are deductible from income for tax purposes. The former should be raised and the latter lowered. That would make our system much fairer than it is at present and IMO is vastly preferable to adding additional brackets and deductions.
It is interesting the list of tax expenditures in the regular budget.
https://www.taxpolicycenter.org/briefing-book/what-are-largest-tax-expenditures
#1, #9 is employer sponsored health care, Obamacare
#3, #5, #13 are for 401K, pensions, and social security
#2, #12 are dividends and capital gains (I quibble since reduced rates are in part counter-balanced by the cost basis not being inflation adjusted)
#4, #7 are child credit and earned income credit
#6, #8, #10 are business income, bonus depreciation
#10 is charity
To put it in perspective, the original SALT was #5 in terms of size.
One other caveat is the #4, #7 are underestimated since the various stimulus packages have increased those without being in the regular budget.
So the NYT is advocating for a policy set up by Trump to hurt blue states because it is the right thing to do. I am sure that all of the conservatives will pile in later to support this and the NYT.
Steve