Tax Reform and SALT

The Wall Street Journal Friday opined that a House-Senate conference on the tax reform bills passed by the House and then-on offer by the Senate (since passed, with some changes to the on-offer version) could improve on the two bills and produce a better one for final passage and President’s signature.  The Editorial Board is right as far as it goes.

Notably in the context of their piece and this post, one of those changes to the Senate’s version that was included in what finally was passed was a change to their complete removal of State and local taxes: the Senate-passed version now includes the House’s deductibility of up to $10,000 in property taxes paid.

But the Editorial Board included this in their piece:

…the bill’s biggest flaw, which is a lousy individual tax reform that raises taxes on many Americans in high-tax states. Eliminating the state-and-local income tax deduction, as both bills do, is sound policy. But the bills don’t offset that with a corresponding reduction in the top marginal tax rate.

This is disingenuous because the editorialists know better. It’s certainly true that, with SALT deductions severely restricted (only that $10k max deduction), citizens of Progressive-Democratic Party-run States likely will pay more in State and local taxes. But to call this a raise in taxes on those Americans is obviously false. Those (excessively) high State and local taxes were already in place, and the House and Senate tax reform bills do not, cannot, touch them.

The “offset” needed is not a “reduction in the top [Federal] marginal tax rate;” although such a reduction would be optimal in its own right.  No, the offset actually needed is for State and local politicians, with encouragement from those States’ Congressional delegations, to reform their own tax codes and reduce their own States’ spending.

It would seem that some members of the “Editorial Board” reside in New York and New Jersey while others phone it in from California.

Leave a Reply

Your email address will not be published. Required fields are marked *