The Grassroots Corner November 4th, 2024

SALT AND OTHER THINGS WE PUT ON EGGS

           Donald Trump recently proposed removing the “SALT” deduction cap. The “salt” here is not the seasoning we sprinkle on eggs but an acronym for the income tax deduction for state and local taxes. Until 2017, American taxpayers who itemized their deductions could claim 100% of the state and local taxes they paid as a deduction on their federal tax return.

           In 2016, it made sense for many married taxpayers filing jointly to itemize their deductions if they exceeded the standard deduction of $12,600, plus two personal exemptions totaling $8,100. If those taxpayers were 65 or older, there would have been an additional standard deduction of $2,500 available. Totaling these items gave a senior married couple in 2016 a “no questions asked” deduction of $23,200.

           However, if their itemized deductions for excess medical expenses, charitable deductions, mortgage interest, investment interest, gifts to charity, excess casualty and theft losses, allowable job expenses, miscellaneous deductions, and SALT exceeded $23,200, it made sense for this couple to itemize, even if itemizing exposed them to questions from the IRS.

           Most taxpayers in the United States still took the standard deduction before 2017. However, many middle-class taxpayers in high-tax states like California, Connecticut, New Jersey, and New York benefited from itemizing, mainly because local property taxes were, and remain, high. In Hunterdon County, New Jersey, for example, the median property tax is $8,523[1] per year. In Summit, New Jersey, average property taxes are $19,012[2].

           In 2017, when Trump was the President, Congress passed the Tax Cuts and Jobs Act. A principal feature of that act was to place a $10,000 cap on the SALT deduction. For most Americans, that cap made little difference. But the cap made middle-class people in states like California, Connecticut, New Jersey, and New York scream – for obvious reasons.

           Economists note that an unlimited SALT deduction incentivizes state and local governments to raise taxes. State and local governments know they will get a partial free ride from Uncle Sam because their residents can deduct state and local taxes from their federal tax base. If you remove the federal tax benefit, state and local governments should behave more responsibly as taxpayers become increasingly resistant to high state and local taxes.
           
           However, that argument has little effect on folks in California, Connecticut, New Jersey, and New York. Removing the lid on SALT deductions is more politically popular even though it encourages higher state and local taxes.

           There is, however, a way to make removing the SALT deduction altogether popular. If you don’t tax income in the first place, the SALT deduction becomes unnecessary. As we know, the only proposal that accomplishes this objective is the FAIRtax. And the FAIRtax gives states no incentive to raise taxes.

          So, let's review. First, Trump proposes to eliminate tax on tips; then he proposes to eliminate tax on Social Security; then he proposes to replace the income tax with tariffs; then he proposes to eliminate tax on overtime; then he proposes to make interest on automobile loans tax-deductible; and now he proposes to lift the cap on the SALT deduction. Where do you think Trump is going with these proposals? He may be teeing up the FAIRtax. Do you agree?

           I would love to hear your view about where we are heading in this election with taxes.
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🇺🇸   Call For Pictures & WriteUps - We need more of you to send in pictures and news. If you have something to share, please send your material to me, Jim.Bennett@FAIRtax.org, (908) 578-4975, or fax (908) 598-2888. When others see your activity, they are inspired, and the process snowballs. When the process snowballs, Congress Members, Senators, and even the President start to listen.