At Issue is SALT, or State and Local Taxes

Sherrill

New Jersey Democrats are in the tough spot of defending a tax cut for the “rich.”

That’s the political spin of the moment and one conservative Republicans are obviously enjoying.

But it’s really not true.

At issue is SALT, or state and local taxes.

For a bit more than 100 years, or ever since the 16th Amendment created the federal income tax in 1913, individuals had been permitted to deduct what they pay in state and local taxes from their overall bill to the IRS. This essentially comes down to state income and local property taxes.

In a state where many families pay more than $10,000 a year in property taxes, this was a big deal.

But the tax reform act of 2017 changed all this by capping the deduction at $10,000. So, if a family paid $16,000 in property taxes alone, they could deduct only $10,000 of it from their federal tax filing.

That was the reason why most Republican House members from New Jersey voted against the bill, despite it being a key domestic achievement of the Trump Administration. The “no” vote didn’t help long-time Republican Leonard Lance who lost reelection in 2018. Rodney Frelinghuysen, another “no” vote, dropped out of the race and Dems won that seat too. Republican Tom MacArthur, who supported the bill, also lost reelection.

So it’s not surprising that New Jersey Democrats have been talking about getting rid of the $10,000 cap since the party took control of the House.

Rep. Mikie Sherrill, in fact, two Christmas seasons ago, staged a demonstration on the House floor called the “12 days of SALT” to urge repeal of the cap.

The House did precisely that, but with the Senate in Republican hands, nothing else happened.

Now, Democrats control both houses, albeit very slightly, and the cap repeal is again in front of us. The repeal is included in the $1.75 trillion social spending bill that the Biden Administration is calling Build Back Better.

Even if Democrats muscle up their forces and pass the bill, chances are good there will be changes.

Will SALT cap repeal survive?

This brings us to the argument that repeal would be a giveaway to the rich. It’s coming from various quarters across the political spectrum, including Bernie Sanders.

The problem seems to be that all numbers can’t be viewed the same. That seems like doubletalk, but it’s not.

Taxes in New Jersey are high; everybody knows that. But so are property values.

A $500,000 home in New Jersey is an average home. But when viewed by those living in Kansas, Alabama, or just about anywhere other than the northeast or west coast, a $500,000 home is where rich people live. So, why should they get any break at all on their taxes?

Here in Jersey, we know that many occupants of half-million dollar homes are middle class families.

Property values could be high, but so is the cost of living.

The fact that fully deducting state and local taxes has been part of the federal tax code for more than 100 years may not be persuasive to the critics.

Sure, repeal would benefit the super, super rich, but that is kind of an unintended consequence.

What’s more important is that repeal would help many average New Jerseyans, which is why doing so does have bipartisan support in the state.

How this turns out is very relevant to many of the state’s taxpayers.

And for New Jersey Democrats, who have called for cap repeal for the last three years, how it turns out is crucial to their reelection campaigns.

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