High-income earners in high-tax states cheered the news last week that Sen. Bernie Sanders had included relief from state and local taxes in his budget.
But figures suggest Sanders is only considering a partial cap reduction. And the latest proposal discussed in Congress will help the highest earners, who account for the largest share of the salt deductions.
Sanders’ $6 trillion budget totals $120 billion for salt relief over five years. The provision has raised hopes in states such as New York, New Jersey and California that Democratic Progressives are open to eliminating the $10,000 state and local tax deduction limit. 2017 employment and creating effective tax hikes for high-income earners in high-tax states
But Sanders’ $120 billion provision will cover only partial cancellations. The Tax Policy Center estimates that lifting the SALT cap will cost approximately $450 billion in the first five years. Meanwhile, the Tax Foundation estimates it will cost about $460 billion over five years. So Sanders’ plan would account for less than a third of the expected cost of removing the limit.
30 Democrats and Republicans have teamed up to form the SALT caucus aimed at repealing the cap, Rep. Josh Gottheimer, DN.J. — one of the party’s chairs — and others say they will not. Sign a new bill or big bill if SALT caps are not cancelled.
More progressive Democrats have criticized the proposal as a tax gift to the wealthy, as 57% of the repeal benefit goes to 1% of the highest earners.
The latest compromise under discussion — and likely what Vermont’s Sanders favors, according to tax experts — is setting an income threshold of $400,000 a year. While taxpayers with higher incomes will remain under the $10,000 limit, the income threshold will help ensure that the benefits of salt cancellation don’t flow primarily to the wealthy.
Gottheimer told CNBC on Monday he continued to support the full cancellation over the earnings threshold. He said even the $400,000 income threshold would affect the middle class, as high-income earners in New Jersey and other high-tax states support social programs through overtax payments. He said many rich people seem to have moved out of states looking to pay less taxes.
“It’s not just the impact on income levels,” Gottheimer said. It had a huge impact on the school. Hiring a Law Enforcement Agency and firefighters Because the tax base is draining when people move to Florida, Texas and the Carolinas, as we’ve seen.”
The income threshold will be generated. The “income cliff” is for people who only make $400,000.
Jared Walczak, the tax foundation’s vice president of state programs, said New York tax filers who make $399,000 and pay $45,000 in state and local taxes will be able to withhold their SALT if the $400,000 threshold is set. Earning $400,001 a year will pay taxes an additional $12,000 a year as they remain within the $10,000 SALT limit.
“Even under this plan Most of the benefits will flow to those relatively close to the threshold,” Walczak said.