Raising the SALT Cap Is a Gift to High-Tax States
The Tax Cuts and Jobs Act (TCJA)—passed in 2017 during the first Trump administration—wasn’t really a tax cut in practice. It ended up functionally raising taxes on a lot of people.
While it did lower marginal income tax rates across the board, reducing the top rate from 39.6 percent to 37 percent, it also capped the deduction for state and local taxes (SALT) at $10,000 annually. SALT includes income taxes, of course, but also property taxes, so the new cap hit taxpayers in high-tax states like New York, New Jersey, and California particularly hard. Even in states without income taxes, where property taxes are frequently higher, many people saw their tax bills increase because they could no longer fully deduct these expenses.
The result was a significant migration of people and capital, with impacts that will be felt for decades. California is losing 500,000 residents annually (about 1 percent of its population), primarily to states like Idaho, Arizona, and Texas. High-profile moves included Amazon founder Jeff Bezos (who migrated from Washington state to Florida to avoid an imminent capital gains tax designed explicitly for him), and the hedge fund Citadel, which moved its headquarters from Chicago to Miami. Northeastern “tax refugees” have also settled in cities like Nashville, Tennessee, and Austin, Texas. Over time, the migration from blue states to red states could reshape the congressional map, potentially giving red states more influence. (Perhaps this was then-Treasury Secretary Steven Mnuchin’s long game.)
The rationale behind capping the SALT deduction was that it would disproportionally benefit high-income earners in high-tax states—and it did. In effect, the federal government was subsidizing the tax-and-spend
Article from Reason.com
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