New York, New Jersey, Connecticut, and Maryland filed suit Tuesday, July 18 against the federal government over taxes. Salt taxes. You would be mistaken if you thought that was a new Democrat plan to pay for everything by taxing table salt. The SALT here stands for state and local taxes, and Blue State Democrats aren’t about to give up their fat budgets and defined benefit pension plans without a fight. They are suing because the new federal tax laws eliminate subsidies for high tax jurisdictions and they want them back.
Hope and Change
State and local income taxes used to be deductible against one’s federal income taxes. So if you, for instance, lived in California and made $250k last year, your California income taxes would be about $33,250. Golden State indeed. It used to be that when you then went to pay your federal income tax, you could reduce your reported income by $33,250. That has changed.
At the end of 2017, Republicans passed, and Trump signed, the Tax Cuts and Jobs Act of 2017. One of the changes the law implemented was to cap the deductibility of state and local taxes to $10,000. Not a change that will affect the poor, except perhaps create more of them in high tax jurisdictions.
Because of the previous unlimited deduction, people who lived in high tax states, the politicians there, and the states themselves, all received a massive subsidy from those in low tax jurisdictions. It just so happens that states and localities with the highest of taxes are often the places you’re most likely find a Clinton voter.
Since every dollar they collected was deducted from federal taxes, the federal receipts are lowered, while state spending is discounted to the tune of whatever the marginal tax rate of the earner is. No more.
Stop the Presses!
What will the federal courts do with this claim? My prediction is nothing. Sadly, state attorneys general, both Democrat and Republican, often use the power of their office to file wildly political suits seemingly designed not to honor their oaths of office and protect the citizenry, but to advance their near-term political interests.
New York estimates that taxpayers will pay $14 billion more in 2018 because of the new rules. New York Attorney General Barbara Underwood said in a statement, “[T]his cap is unconstitutional – going well beyond settled limits on federal power to impose an income tax.” Did a statewide elected Democrat from New York just make an argument that there were limits on the federal taxing authority? Be still my heart.