TPM Marshall "The Political Consequences of the End of SALT Deductions"

[NRaleighLiberal]

http://talkingpointsmemo.com/edblog/the-political-consequences-of-the-end-of-salt-deductions

By JOSH MARSHALL Published DECEMBER 28, 2017 12:44 PM

There is almost no limit to the bad policy included in the new GOP tax law. Indeed, even within ‘bad policy’ which can distinguish between ‘bad policy’ in the sense of conservative public policy which I and likely many readers think will have bad outcomes and ‘bad policy’ in the sense of poorly constructed tax law which almost no one would devise if they had time and weren’t so focused on giveaways to major donors. Of all these however I continue to believe that the (near total) end of deductions for SALT taxes are likely to have the greatest political impact. They are also stimulating a new debate about the distribution of resources within the US federal system.

Let’s rehearse some details.

‘SALT’ refers to state and local taxes which have been deductible against your federal income tax burden. Starting in 2018 that deduction will be capped at $10,000. The impact of this will vary dramatically depending on where you live, how much money you make and how you spend that money. But the big picture is that it will have the biggest impact in high tax states and particularly on individuals who live in high tax states, are affluent enough to have a relatively high state income and property tax burden but are yet not so wealthy that they get the big benefits from the corporate and federal income tax reductions in the tax bill.

From a macro perspective, the SALT change means that the higher tax states (mainly but not exclusively blue states) will be sending a lot more money to the federal government. This is on top of the fact that blue/high tax states already send much more money in taxes to the federal government than they receive back in services, grants, general spending, etc. There are significant exceptions. But by and large federal taxing and spending policy draws money from the blue states and reallocates it into the red states. Indeed, a state like Louisiana, for instance, is able to keep its taxes low not simply because it has less expansive government services but also because it funds state government with a substantial infusion of federal subsidy. The new bill will intensify this existing pattern.

This is all by design. This policy is intended to punish states that tend to vote Democratic. The more high-minded explanation of the motivation is that it gives an incentive to lower state taxes. Generic punishment is probably the better way to look at it.

snip - read on at the above link

[lapfog_1]

1. It really is going to hit tech workers here in Silly Valley

Individuals and couples that make 150K but under 250K.

Sounds like a lot, right? Factor in rent or mortgages of $2000 to $3000 a month, 10% state income tax, local sales tax of 8.5% or more...

I live a very modest lifestyle here, drive a 4 year old car ($350 a year at DMV), and save only around 5% of my salary in my 401K. Not enough to retire without SS.

Monthly post fed and state withholding of around $8,000. After expenses (rent, utilities, car payments, etc)... lucky to have $2,500 left over for food and entertainment.

Not complaining... but it allows me to send nearly $3000 a year to Democratic candidates around the nation, plus help my poorer relatives in red states who are always asking for a few hundred bucks to help them with whatever emergency of the week.

Get rid of SALT and my guess is that I will be paying 37 percent on an additional $6,000 to $7,000 a year (11 percent of the income over $100K). That's a $2,500 hit to my post tax income or $200 a month. So... sorry red state relatives. No more loans that never get paid back, no more inflatable swimming pools for your kids, no more car repairs so you can get to your jobs, no more help with the daughters wedding dress...

Hope the "massive" tax cut you all voted for makes up for the loss of my "help" (but I bet it doesn't).

[Hoyt]

2. The reduction in the tax rate should be enough to offset all, or at least most, of that.

I don't think most people are going to feel much pain DIRECTLY from this tax bill. Although, some people who own their house in high property tax areas might. The indirect impact, is what will affect most of us long-term.

But the vast majority of regular Joes/Janes will see more in their paychecks and wonder what all the fuss was about.

[lapfog_1]

3. I fully expect California to RAISE the income tax

to pay for the coming reductions in Medicare and the ACA plus to pay for infrastructure.

All things that must be done here to keep the quality of life.

so that small reduction in the top federal tax rate is likely going to the state.

[Blue_true]

4. You should "inform" your red state relatives now.

Say something like "My tax payments will be going up because of the tax bill, so I won't be able to help anyone that need money. I Apologize." Save the for later.