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]

Here is a revised version with improved grammar, clarity, and flow:

⸻

It is well documented that higher-tax states pay more in federal taxes than they receive in return.

So how do higher-tax states subsidize lower-tax states? The answer lies in the fact that lower-tax states rely more heavily on federal funding to support their budgets.

That’s the essence of the subsidy. Even before the SALT cap change in 2017, high-tax states were still contributing more to the federal government than they received. Increasing the SALT deduction would simply reduce the extent to which high-tax states subsidize low-tax states.

https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700
[/quote] You are wrong. No state government pays a dime to the Federal government in taxes. Not one. This where this BS logic breaks down.

US citizens with the same income/deductions pay the same Federal tax, regardless of what state they live in. They may pay higher state taxes b/c they CHOOSE to live in a state with higher state tax rates. Hopefully, they feel they are getting something valuable for the higher state taxes. If not, then move to a state with a lower state income tax.

So own your CHOICE, pay your state taxes without Federal subsidy, and quit whining about it. [/quote]

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