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WASHINGTON – The elimination of the state and local tax deductions (SALT) is one of the most controversial aspects of the Republican framework for tax reform, drawing the ire of Democrats and many Republicans in states like California, New York, and New Jersey.
The SALT deductions allow earners in states with particularly high income rates to take a chuck out of their federal tax bills. Eliminating such deductions, which top Republicans have proposed, could place increased burdens on many middle class Americans.
On Thursday, Bloomberg reported that President Donald Trump signaled he might reverse the elimination of SALT deductions.
However, Treasury Secretary Steven Mnuchin remained adamant that SALT deductions die with the new tax overhaul.<
“We can’t have the federal government continue to subsidize the states,” Mnuchin said on CNBC’s “Squawk Box” on Thursday. “That’s a major loophole that we’re trying to close in simplifying taxes.”
Mnuchin added that because he has lived in both New York and California, he understands the “issue very well.”
But lawmakers on Capitol Hill were still concerned about what an elimination of SALT would do to middle-class taxpayers.
Massachusetts Rep. Richard Neal, the top Democrat on the House Ways and Means committee, said Republicans “like to frame this deduction as a blue-state-only priority,” which he said would amount to a low point in deciding complex tax policy.
“I mean I can’t imagine that they’re gonna ask for a middle-class tax increase on their constituents while simultaneously saying you should cut the top [individual tax rate] from 39.6% to 35%,” Neal said. “The arithmetic doesn’t work.”
Neal added the best way to court Republicans who might reject a tax bill that included a SALT elimination would be to persuade the public against it and put pressure on vulnerable Republicans.
For Republicans, however, it comes down to numbers and whether eliminating SALT deductions would increase taxes on constituents.
Rep. Mimi Walters, a California Republican, told Business Insider that her “number one concern is making sure that middle class Americans have more money in their pocket.” As to whether she would support the forthcoming bill if it includes a SALT elimination, Walters said it would have to be properly analyzed to assure her that no middle class earners would see a tax increase.
However, California Rep. Duncan Hunter suggested he would support a tax reform bill no matter what, because a SALT elimination could help the rest of the country.
“I would like to see the deductions in there, but with California, it’s on the leading edge of stupid in terms of its government,” Hunter told Business Insider. “So it would be unfortunate but in this case, I would probably vote for tax reform if it did not have those deductions in it. I would prefer that it had it in it. It’s gonna affect me but I’m not gonna hold up something that would help the entire country because our state is stupid.”
Hunter added that SALT deductions will have to be addressed no matter what, “because most guys are not like me.”
“The guys from Jersey, New York, other Californians, they’re not gonna vote for it if the state and local taxes are not deductible, which means they can’t get it passed without that,” he said.
Regardless of how various blue state Republicans fall on the elimination of SALT deductions, the main deal-breaker for Republicans seems to be the impact any tax bill would have on middle class Americans.