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Trump’s SALT ‘war’ may not be as bad as blue staters thought

NEW YORK  In liberal bastions like metro New York and California, the Trump tax overhaul has been criticized as economic warfare. But as elements of the plan come into focus, tax experts are concluding that some of the most dire predictions for high-tax blue states  particularly surrounding the treatment of state and local taxes  may not pan out as feared.

In blue New Jersey, for instance, the new law will raise taxes on about 285,000 filers earning between $79,890 and $336,620, with a typical hike of about $1,400, according to an analysis by the liberal Institute on Taxation and Economic Policy. However, more than 1.2 million New Jerseyans in the same income range will get a cut, with typical savings of about $3,000, according to the analysis.

That hasn't stopped blue-state governors from supporting workarounds to thwart parts of the $1.5 trillion tax regime, signed into law Dec. 22 by President Donald Trump.

The provision most bitterly opposed during the legislative debate was the $10,000 cap on federal deductions for state and local taxes, or SALT. In places such as West Virginia and Mississippi, that amount is sufficient for most taxpayers. In high-tax states, it's a pittance. So the governors  Jerry Brown of California and Andrew Cuomo of New York  and New Jersey Governor-Elect Phil Murphy are entertaining ways states can provide the relief the feds have taken away.

The irony is that after weeks of blasting the tax changes as benefiting America's wealthy, their efforts would likely cut taxes even deeper for their richest residents.

"State proposals to restore the full SALT deduction through legally suspect workarounds represent an attempt to provide additional tax benefits for high-income filers, even though they  like almost all taxpayers  are already getting a tax cut," Jared Walczak, senior policy analyst at the conservative Tax Foundation, said in an email.

Steve Wamhoff, a senior fellow at the Institute on Taxation and Economic Policy, agreed that the workarounds would benefit the rich.

"The federal government gave out tax cuts that disproportionately favored wealthy people," Wamhoff said. "Is the answer for states to give more tax cuts that favor wealthy people?"

Brown called the cap on SALT deductions "an assault by the Republicans" on high-tax blue states. He said Wednesday he was open to a bill in the California legislature that would make tax payments charitable contributions, which aren't subject to the cap. The legality of the idea is open to question.

New Jersey's Murphy, who will take office Jan. 16 after being elected in November, had pushed for additional taxes on the wealthy during his campaign. Last week, he said he would work on a similar plan to essentially convert property taxes to charitable contributions.

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