Blue states have a SALT problem – Orange County Register

There is grim news from Washington for California high-income earners, as negotiations over increasing the state and local tax deduction, known as the SALT deduction, have failed to reach agreement. favorable.

This means that Californians who have minimized deductions on their tax returns will continue to feel the utter pain of high state and local tax rates. They won’t be able to deduct the exorbitant amounts they pay on their federal tax returns. “Don’t worry, it’s deductible,” is no longer an answer to the question, “Are you concerned that California has the highest state income tax rate in the nation?”

Prior to 2017, there was no limit on the deductibility of state and local taxes, so high-income residents of high-tax states like California, New York, and New Jersey weathered the effects. worst due to the federal tax cut. That changed, however, with the Tax Cuts and Jobs Act, signed into law by President Donald Trump in his first year in office. The law limits the deduction for state and local taxes to $10,000.

In states with no income tax, such as Texas and Florida, this has little or no impact. But in California, with a top marginal income tax rate of 13.3%, capital gains are taxed like ordinary income and substantial property tax bills are based on the purchase price of the property. $10,000 was easily exceeded.

This leaves key Democratic lawmakers, including California’s Nancy Pelosi, in the dilemma of arguing that Trump’s tax laws are too harsh for wealthy taxpayers.

That controversy is still raging within the Democratic party. After President Joe Biden’s “Building Back to Better” bill failed in the Senate, talks to get at least part of it back in action are continuing. The SALT deduction has been a point of contention in these talks. Senators Bernie Sanders, I-Vermont, and Senator Bob Menendez, D-New Jersey, discussed lifting the $10,000 limit or adding an income-based exemption that would protect taxpayers middle class affected by the loss of the deduction.

However, negotiations between Sanders and Menendez have completely broken down and the two are now “at odds,” according to a report in the Capitol Hill Roll Call. Sanders sees the SALT deduction as a gift to the wealthy.

And that’s right.

The SALT deduction is a tax relief for high-income individuals who take on large, progressive spending plans by state and local officials in states including California. It lowers the price a bit for these taxpayers who could otherwise think of rolling back higher taxes on the wealthy.

In fact, several proposals for higher taxes on the rich have been delayed by the California legislature since the SALT cap went into effect, to the chagrin of progressive activists.

But wealthy taxpayers who are tired of California’s high taxes can move to any of the other 49 states and have a lower tax bill. Because California’s income tax rate affects the rich, the departure of a significant number of those taxpayers would leave a crater-sized hole in the state’s general fund.

So state legislators may want to rethink their tax policies and consider ways to help businesses large and small become more profitable in California. Asking Uncle Sam for a bailout cannot be the solution to every problem.