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Amid this year’s hard-fought battle over a handful of New York suburban House seats, Republicans and Democrats agree on at least one policy priority: Removing the $10,000 cap on state and local tax deductions, or SALT, which then-President Donald Trump signed into law as part of the Tax Cuts and Jobs Act of 2017.
In a U-turn on his own past policy, Trump now says he agrees, too.
“I’m going to restore SALT,” the former president told a cheering throng at a Sept. 18 campaign rally at Long Island’s Nassau County Coliseum.
With most of the TCJA due to expire at the end of 2025, the fate of SALT and other provisions of the law will be a front-burner issue for the next administration, no matter who wins.
Trump’s turnabout seemed design to bolster voter turnout for three of the GOP’s suburban Republican freshmen, who are critical of the SALT cap and are now locked in toss-up races that could decide control of the House of Representatives.
New York Democrats are understandably annoyed.
“Trump and House Republicans were the ones who capped SALT deductions — taking billions of dollars out of the pockets of hard-working families throughout our state,” Gov. Kathy Hochul griped on X. “New Yorkers see right through the BS.”
Speaking of BS: The damage supposedly done by the SALT cap has been grossly misrepresented by New York politicians in both parties.
The cap did not “take billions of dollars out of the pockets of hard-working families” — not when combined with other 2017 tax law provisions that put billions of dollars back into most of the same pockets.
In fact, federal individual income taxes on New York residents dropped by $3.4 billion the first year under the new tax law, according to the Internal Revenue Service.
New York pols who’ve devoted years to pounding SALT have ignored tax-cutting TCJA provisions the cap helped pay for.
Those cuts included rate reductions in middle-income tax brackets; a doubling of the standard deduction, which simplified tax filing by ending the need to itemize; and a doubling (to $2,000 from $1,000) of the tax credit for kids under 17, now fully available to families with incomes as high as $400,000.
The 2017 law also scaled back dramatically the impact of the Alternative Minimum Tax, which fully disallowed any SALT deductions — and thus disproportionately affected Empire State residents.
The net impact on New Yorkers of all the TCJA provisions was a slight cut in the overall tax burden, and a redistribution of that burden among different types of households.
In New York’s downstate suburbs, families with children under 17 typically saw their federal income taxes at least slightly reduced, while childless households and empty-nest homeowners more often experienced a tax hike.
The SALT cap’s negative impact in New York was felt mainly by households earning $1 million or more, whose pre-2018 SALT deductions had averaged $534,000.
Yet three years after the SALT cap effectively boosted New York’s tax on top earners, Gov. Andrew Cuomo’s last budget pushed it even higher, with one of the largest personal income-tax rate hikes in the state’s history.
New York’s top rate, which formerly maxed out at 6.85%, and 8.97 percent under a temporary “millionaire tax,” now reaches as high as 10.9% on incomes over $25 million. New York City adds its own 3.88% to the state levy.
The combined state and city marginal rate of nearly 15% is the nation’s highest.
Whatever changes get made to the tax law next year, prospects are dim for a full restoration of the pre-2018 SALT deduction.
Congressional Democrats and Republicans seem more likely merely to raise the SALT cap to deliver bigger cuts to “hard-working families” who figure prominently in their rhetoric — perhaps doubling it to $20,000, as called for in one proposal.
Given all the vapid political posturing around SALT since 2017, New York misses more than ever the insights of the late Sen. Daniel P. Moynihan.
A fierce defender of the SALT deduction during Reagan-era tax reform debates, Moynihan regularly highlighted the extent to which New York generated more federal revenue than it got back in the form of direct federal spending — an inevitable product of the steeply progressive and income-redistributing tax code that he and his fellow liberal Democrats favored.
As his tenure wound down in 1999, Moynihan proposed a grand fiscal compromise: “Less activism in Washington in return for more revenue at home, for whatever active measures recommend themselves to the state or municipality in question.”
In other words: We’ll stop demanding more federal spending in New York, if they let us fully deduct our state taxes and spend more of our own money here.
Unfortunately, that vision seems further than ever from being realized — no matter who wins the election.
E.J. McMahon is an adjunct fellow at the Manhattan Institute. Adapted from City Journal.