Tax deductions

Stopping Trump’s cap on tax deductions hurts Californians. Stop the bleeding

A small tax injustice is about to be erased – if the middle class can avoid being falsely labeled “rich” and unworthy.

Let me explain.

Remember the long-standing state and local tax relief that was cut four years ago by President Trump and Republican-controlled Congress?

It could be largely restored as part of President Biden and the Democrats’ $ 1.85 trillion social safety net bill that President Nancy Pelosi hopes to put to a vote this week in the US House- United.

Before the Trump-GOP butcher shop, we could deduct all state income and local property taxes from federal returns.

But Trump and the Republicans have placed a cap of $ 10,000 on deductions for state and local taxes, called SALT in the government’s speech. Before that, the average SALT deduction in California was over $ 18,400.

The state’s Franchise Tax Board reported that in 2018, the SALT cap cost Californians $ 12 billion. The Washington-based Institute on Taxation and Economic Policy has estimated that by 2022, the SALT cap on Californians will be $ 33 billion if the law is not changed.

Why was it adopted in the first place? Two reasons.

The higher federal personal income tax revenues were needed to pay for the corporate tax cuts.

For Trump and the GOP, the cap was also a stinging blow against the heavily taxed blue states run by Democrats – states like New York, New Jersey and California.

Then-Gov. Jerry Brown was not wasted his words, accusing Republican leaders in Congress “of wielding power like a bunch of Mafia thugs.”

Gov. Gavin Newsom and six other Democratic governors sent Biden a letter in April urging him to “unravel the plug.”

The middle class is at the center of the conflict. Some Liberal lawmakers and think tanks argue that repealing the cap would be an unwarranted giveaway for the rich and of little benefit to the middle class.

Absurdity. But forget about a total repeal.

House Democrats, led by members from New Jersey and including California Rep. Katie Porter D-Irvine, are pushing to raise the ceiling. The last goal is $ 80,000.

But even if that higher cap is passed by the House, it will almost certainly be changed in the Senate.

Senator Bernie Sanders, I-Vt., Chairman of the budget committee, said the House proposal was too suited to the wealthy and “is unacceptable.”

Sanders and Sen. Robert Menendez, DN.J., have proposed removing the cap entirely for taxpayers earning less than $ 400,000. Above this income, the limit of $ 10,000 would be gradually reinstated.

Falling into the top 20% of California earners hardly means that a family is rich. He can hit that bar with a salary of around $ 110,000, according to the state’s Franchise Tax Board based on 2019 data, the latest available. You’re in the top 5% with a family income of around $ 270,000 – very comfortable, but not exactly mega-rich in high-cost California.

A change in SALT would not only benefit wealthy Californians. It would also benefit many middle class taxpayers.

The state’s finance department has analyzed what an $ 80,000 cap would mean to Californians. He calculated that 2.3 million taxpayers could potentially benefit by being allowed to deduct an additional $ 43 billion. Of these taxpayers, 1.3 million earn less than $ 175,000. Their deductions would increase by $ 9 billion.

“It’s pretty clear from the data that a SALT change doesn’t just benefit the wealthiest class,” Finance Department spokesman HD Palmer said. “Hundreds of thousands of California taxpayers with incomes well below the top of the heap would benefit. “

The SALT overhaul “may have a bigger impact on wealthy people, but middle-income people benefit too,” said Rep. Mike Thompson (D-St. Helena), who has long pushed for the ceiling to be lifted. .

“I think we’re going to get something. It’s not soup yet. It’s still cooking.

Almost everything would taste better than what is served now.

George Skelton is a columnist for the Los Angeles Times.