Tax deductions

Repeal of cap on state and local tax deductions would widen the racial wealth gap, new study finds


Top line

As some heavily taxed blue state lawmakers call for the elimination of the Trump-era $ 10,000 cap on state and local tax deductions (SALT), a new study from the Left Institute on Taxation and Economic Policy shows that repealing the deduction would not only disproportionately benefit the rich, but also white taxpayers, widening the already gaping racial wealth gap.

Highlights

“The vast majority of families would not gain any benefit from repealing the SALT cap, and the new ITEP analysis shows that people of color are particularly unlikely to benefit,” the researchers wrote.

Their analysis shows that black families would be 42% less likely to benefit from the repeal (5.6% of black households would pay less taxes, compared to 9.7% of white families).

Two-thirds of the tax benefits from repealing the cap would go to white families earning more than $ 200,000 a year, according to the study, while 5.1% of the benefit would go to black households at the same income threshold.

One of the reasons for this disparity, according to the researchers, is how the SALT deduction favors taxpayers with higher incomes and those who own valuable homes.

Since white families tend to earn more and are also more likely to own property, they are more likely to benefit from the repeal of the cap.

Large number

$ 67 billion. This is the total tax benefit that white families earning more than $ 200,000 would receive in 2022 if the SALT cap were removed (based on a rough estimate of annual costs in 2022 of $ 100 billion), according to the ‘ITEP. Black families at this income threshold would see a tax cut of $ 5 billion, and black families below the $ 200,000 threshold would see a reduction of only $ 600 million.

Crucial quote

Supporters of the SALT deduction argue that it allows states and localities to impose more taxes on their wealthier residents. “Repealing the SALT cap would likely crowd out other much more progressive policies and programs from the next infrastructure package while doing relatively little to encourage a gradual increase in income at national and local levels,” the authors wrote. study Carl Davis and Jessica Schieder in a Tuesday. blog post. “Lawmakers keen to get rid of the SALT cap should look to broader reform of itemized deductions,” they added.

Key context

Capping national and local deductions was a major part of former President Trump’s 2017 Tax Cuts and Jobs Act. Under this law, the $ 10,000 cap will expire in 2025. Some lawmakers in Washington are fighting for President Biden’s plan for over $ 2,000 billion infrastructure spending to contain an immediate repeal of the SALT cap and threaten to vote against the legislation if they don’t. Last week, a bipartisan group of 32 House MPs announcement they had created a SALT Caucus dedicated to re-establishing the deduction. “The SALT deduction cap has been a big blow to New York City and middle-class families across the country. Ultimately, we must right this injustice, ”Representative Tom Suozzi (DN.Y.) said in a statement. ITEP researchers found that black families in California, Illinois, New Jersey and New York – four states with delegations that make up 90% of the new caucus – are between 44 and 54% less likely to see a repeal tax cut than white families. Hispanic families are between 49% and 60% less likely to receive a tax cut, researchers say.

Tangent

When New York Governor Andrew Cuomo announced a budget deal (now signed into law) earlier this month, which included significant tax hikes for the wealthiest residents of his state, he claimed that New Yorkers’ net taxes would in fact decrease because he was relying on a Democratic Congress to repeal the SALT cap.

Further reading

Not Worth Its Price: A Tax Cut Proposal Overwhelmingly Benefits Rich, White Households (Institute of Taxation and Economic Policy)

17 New York Democrats threaten to oppose tax law without salt restoration (Forbes)

The New Civil War: The Blue States Soak the Rich; Red states sue to cut taxes (Forbes)


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