Though voters elected Republicans to the House majority in the last congressional elections, since the start of Rep. Matt Gaetz’s (R-FL) revolt against the speakership of Rep. Kevin McCarthy, the GOP seems keen to give that majority away. And as former President Donald Trump cleans up in the nomination fight and aims for a White House return, House Republicans seem inclined to obliterate one of his signature legislative achievements — the $10,000 cap on the state and local tax deduction.
Enacted as a part of the 2017 Tax Cuts and Jobs Act, the SALT deduction cap does what it says. It crucially forces high-income taxpayers in blue states to foot a greater share of both their federal and local tax bills instead of pawning off the costs to lower-income earners as well as taxpayers in other states who didn’t vote for high-tax policies.
Because the TCJA was enacted through a parliamentary trick known as reconciliation, the deal needed to generate enough tax revenue to offset the middle-class and corporate tax cuts. That renders the TCJA nominally deficit-neutral in the long run. A good portion of this increased federal tax revenue came from the SALT deduction cap.
Now, House Republicans preparing to assist Trump’s reelection campaign want to kill this accomplishment and punish lower-income earners and Republican voters. Worse still, blue state Republicans are joining with Democrats to do so, nuking the two-seat majority the GOP has in the process. Given the $34 trillion national debt, it’s the height of fiscal irresponsibility. But when Democrats are single-handedly funding the invasion across the southern border, it’s also political malpractice.
If the TCJA cap is repealed, 96% of the SALT deduction benefits would go to the richest 20% of earners, and 56% would go to the “reviled” 1%. In other words, the uncapped deduction is regressive, forcing Uncle Sam and fellow taxpayers to subsidize poor fiscal policy in liberal states. But worse, repealing the cap would stymie a half-decadelong process of rebalancing the playing field of economic competition.
For example, prior to the TCJA, California’s wealthy paid just 60% of revenue collected for the state’s top marginal tax rate. Through the uncapped SALT deduction, the federal government essentially paid for 40% of California’s ridiculously high tax tiers. Not only have red states and the nationwide working class defunded this madness, as evidenced by California’s spiraling deficit crisis, but the SALT deduction cap may have also helped trigger the great internal migration out of blue states and into red ones. Recall that even before puerile COVID-19 pandemic lockdown policies triggered a mass exodus from blue states, governors like New York’s Andrew Cuomo were correctly blaming the SALT deduction cap on an outflow of high earners.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The question of fiscal culpability is even more prescient now that the experiment of sanctuary cities has been taken to its logical conclusion. After President Joe Biden ripped up Trump’s diplomatic deals that effectively secured the southern border — namely “Remain in Mexico” and the Safe Third Country agreements — border cities are breaking under a record influx. Not just from Central and South America, but also from China, Russia, and the terrorist watchlist have finally made blue America share the burden. If California wants to give illegal aliens from Tehran and Timbuktu free healthcare through Medi-Cal, that’s the prerogative of its voters. But there’s no way in hell the rest of the nation’s workers ought to be forced to pay for it.
While conservatives should correctly weight possible tax cuts that actually generate a positive return through increased economic growth, removing the SALT deduction cap would do the opposite by allowing blue states to continue their spiral into anti-growth redistributionism. In fact, should Trump succeed in this campaign and beat Biden for a second term, the $10,000 remains of the SALT deduction ought to be at the top of the chopping block. To recoup the $23 billion in losses the capped deduction still costs us annually. But also on the simple principle of making the fiscally irresponsible voter pay their fair share.