Why Joe Biden Is Keeping the Cap on SALT Deductions
When the Trump administration pushed capping the federal tax deduction for state and local taxes (SALT), the plan was billed as a way to punish Democrats in high-tax states. But the move also increased federal revenues by as much as $100 billion. Now the Biden administration is showing little enthusiasm for undoing Trump’s cap. The cap means more federal revenues to help pay for Biden’s infrastructure plan.
Nonetheless, Democrats in high-tax states like California, New Jersey, and New York are now threatening to hold up President Joe Biden’s plan in the hope of eliminating the cap on the SALT deduction. The SALT deduction divides the Democratic Party between socialist activists like Bernie Sanders and Alexandra Ocasio-Cortez, who oppose the repealing of the SALT deduction as a “gift to billionaires,” and other representatives of New York and New Jersey, who want an elimination of the cap. However, in the debate on whether SALT is a tax break for the rich or a lifeline for middle-class families in high-tax states, most politicians forget that a tax takes away money from an individual regardless of income. The cap on the SALT deduction also essentially paves the way for the federal government to tax income twice.
The SALT tax deduction allows state and local taxes—like property taxes—to be deducted from federal taxes. State and local taxes and other taxes have been deductible since the inception of the federal income tax in 1913 to avoid federal encroachment on state tax prerogatives and to allow the federal government to tax income that has already been confiscated via taxation by more local levels of government. Changes in 1964
Article from Mises Wire