With so few lower-income taxpayers listing deductions, around 96 percent of SALT benefits go to the top 20 percent of households. The deduction becomes more valuable as your tax rate goes up so that more than half of the benefit goes to the top 1 percent. A quarter benefits people in the top 0.1 percent of household income.
With rare exceptions, don’t just live in a high-tax country if you’re concerned about not being able to deduct your state and local taxes. You make a lot of money.
However, when a 2017 tax bill limited that deduction to $ 10,000, Democrats began agitating almost immediately to lift the cap. President Biden was barely informed when they pushed for it to be included in the latest relief law: With all the suffering in the country, won’t someone think of the rich?
Of course, that’s not how they put it. The words “Race to the Bottom” are widely used, implying that the abolition of the subsidy will propel wealthy Americans into lower-tax states, which relieves the burden on the people in need, as state and local taxes tend to go to the most needy .
However, when you look at the tax burden in each state, the relationship between tax collection and quality of service isn’t that clear. Are the poor in the high-tax District of Columbia one-third better off than those in neighboring Maryland? How does Massachusetts in the middle of the street manage to provide such excellent service while receiving less than 10 percent of its citizens’ personal income while New York State needs nearly 14 percent? Or are we subsidizing inefficient governments like New York’s highest transit construction costs worldwide?
Other funds are spent on things that primarily benefit local people, such as streets and sidewalks. It would be hard to argue that people in other states should pay for these things even if they didn’t mostly live in places with lower incomes than New York, New Jersey, or California.
At this point, SALT’s boosters often reply that blue states subsidize red states, so SALT deductions only adjust the balance a little. Unfortunately, this legend is not entirely true: there are red states among the net treasury donors, and many blue states are among the most subsidized. Additionally, these imbalances are largely a product of what most SALT boosters support, such as: B. federal employment; and progressive transfer programs such as social security. Given that most of SALT’s cheerleaders also support improving the overall system, it is strange that they should suddenly argue for special tax breaks for the rich.
But democratic leaders have to face a special group of voters: rich people who don’t feel very rich. If you’re reading this article, you are likely one of them. I am also. We tend to sincerely believe two things: rich people should pay more taxes, and we need more tax breaks ourselves because we can barely get through.
Sure, we might make a comfortable income, but we had to borrow every last penny the bank would approve to get the ugliest house in a good school district. Many of us live from paycheck to paycheck when property taxes or tuition fees come due, and our vacations never include words like “luxury villa” or “private jet”. How can we be rich no matter what is on the household income tables?
The more difficult truth, however, is that we really do spend our large incomes on luxury, in the sense that very few people can enjoy the things we pay for: close access to a dynamic urban economy with deep labor markets, many cultural institutions and Most importantly, our children’s near-guaranteed access to elite college education and the types of elite jobs that require those degrees. We tend to consider these things as bare essentials, but most Americans forego them.
We also forget that we chose to pay these inflated costs because having access to what these cities offer is valuable and what we want. We should be grateful that we can afford it instead of looking enviously at people who live elsewhere.
Or if we really have problems, we could urge the governments we elect to cut down on the absurd feather beds in roads, bridges and transit projects, as well as the restrictive building codes that make new housing so expensive and other excesses. That would certainly be more defensible than trying to revive the SALT vent so that people who have made different choices can subsidize the high costs of claiming our privileges.