The tax bill passed by Republicans in 2017 mostly made our tax code worse, increasing the federal debt by up to $2 trillion and delivering the bulk of its tax cuts to corporations and the rich. But the bill contained one very good, very progressive provision: capping the State and Local Tax (SALT) deduction at $10,000 per household. Unfortunately, House Democrats just made a proposal that would compound the GOP tax bill’s regressiveness: increasing the SALT cap and giving multimillionaires a $25,000 per year tax cut. The Senate must not follow their lead.
The SALT deduction has been around in some form for a long time, dating all the way back to the Civil War. It allows taxpayers to deduct what they pay in state and local income, property and sales taxes from their federal taxes. But not all taxpayers get to reap the benefits of the SALT deduction. Taxpayers must itemize their tax returns to be able to claim the SALT deduction—and only the richest taxpayers tend to itemize. Most taxpayers tend to take the standard deduction rather than itemize, unless they make at least $500,000 in a single year. And as one becomes richer, and consequently pays more in state and local taxes, the dollar benefit of the SALT deduction becomes larger.
Until the 2017 Republican tax bill capped the SALT deduction at $10,000, there was no limit on the amount that could be deducted. The cap amounted to a tax hike that applied almost exclusively to the richest Americans. It raises about $85 billion each year, 90 percent of which comes from the richest 10 percent of Americans.
