Reply to Trump flip flops on SALT Tax Deduction

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I personally would be better off with a higher SALT limit, all else equal, but it's clearly the right policy to limit or eliminate the deduction.[/quote]

SALT deductions have been around since the 1860s. Why? Because it was considered Big Government overreach for the federal government to double-tax the states.

[quote][i]The United States’ first income tax was enacted in 1861, and tweaked in 1862.  Both versions contained only one deduction; and, you guessed it, it was the SALT deduction!  A recently minted political party called the Republican party controlled Congress and a Republican-party President occupied the White House for the first time (a 6’ 4” fellow named Abraham Lincoln).  Records of why the SALT deduction was included in the first income tax are scarce, but there are documented statements by Congressional Republicans that may support two justifications.  [b]The first was federalism and keeping the Federal tax out of the orbit of State levies.  The second was double taxation: preventing the Federal government from taxing a dollar that the States had already taxed.[/b]  There is no record of political discord over the SALT deduction. [/i][/quote]

https://www.chamberlainlaw.com/tax-blawg/history-of-the-salt-deduction

Capping SALT deductions in 2017 was the radical policy.[/quote]

I don't see anything here making a serious policy case for a SALT deduction (and no, "we've done it this way for a century" is not a serious case).  The core issue is that SALT amounts to a federal subsidy of state taxes and mortgage interest in proportion to the taxpayer's income, with high income folks receiving a greater subsidy as a percentage and folks in high tax states receiving a higher level of subsidy.   This makes no sense!  Just eliminate the deduction and lower the rates by a couple percentage points until revenue is equalized.  [/quote]

The states with low/no state income tax are subsidized by wealthier states - ie the ones that tend to have higher state and local taxes. Seems a fair way to offset that. [/quote] Not PP, but disagree with this statement. How are states w/higher state income tax, subsidizing those with lower state income tax ? It’s not like the high tax states are sending part of their state budget to the Feds to spend for the benefit of all. Sure, you can say they have higher per capita income, so what, they pay more federal income tax as they should, but has nothing to with the state taxes. They would pay the same Federal tax if they lived in low tax states.

The reality is that states with higher tax rates have chosen to provide more services and better paid civil servants, compared to that of low tax states. They may also be inefficient in providing those services. The SALT deduction is a way to hide this from their citizens. I say let them pay the full freight. And if they don’t like it, move or complain at the voter box.

[/quote]

When states with low/no state or local taxes underfund their programs, the federal government steps in. So while we with higher taxes pay for our services with our high taxes up front, we're also paying for those who refuse to fund their local services through their own state taxes with the extra federal support they receive as a result.  [/quote] Its a weak argument with no specifics. And it’s  impossible to untangle from the argument that some states are less efficient than others, so why should the entire country subsidize those inefficient states with high state income taxes by giving a Federal deduction for their citizens ? Makes no sense.

Every state is in control of its own budget. They decide every year what services to provide and at what level, and what the tax rate will be to support that spending. It has nothing to do with what some other state has decided to spend on its service level.

Citizens of NY,NJ,CA,MD,VA have tacitly voted for their current tax rate and services, based on who is in state office. Let them pay for what they voted for. A federal deduction is unrelated to that decision making.[/quote]

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