Worth Their SALT?

Shady, shady, shady.  That’s the only way to describe what’s going on with the GOP tax bill.  After Monday’s blog post about the end of the teachers’ expense deduction, I wasn’t planning to talk about the tax bill again.  But then I learned a new detail that I had to share with you.  If you’ve been following the discussion about the tax plan at all, SALT imageyou’ve probably heard that it ends the deduction for state and local income taxes.

This move has been very controversial, because it will mean a significant tax increase for many people. And obviously it will be most harmful to people who live in high-tax states and/or states with a high cost of living – in other words, it overwhelmingly hurts people in blue states.  And of course, the next logical leap from there for many of us is to say to ourselves: “wait a minute . . . assuming Trump actually pays any income tax, this change to the state and local tax (SALT) deduction would hurt him too.”  Or would it?? 

SALT increase crop.jpg

According to a new discovery made this week by some eagle-eyed tax experts, it turns out the answer is no.  Upon reading through the tax bill, New York University Law professor David Kamin realized that people who own their businesses (or a portion thereof, i.e. a partner in a law firm) or people who make their income through passive investments can continue to deduct state and local taxes on that income under the new plan.  It’s only employees who will no longer be able to deduct their state and local income taxes:

Employees wouldn’t be able to write off their state and local income taxes, while owners and investors would. Take a law firm partner or any other owner of a business (see Donald Trump) drawing a profit share from a company. If the company is a “pass through,” there is no tax directly on the company — only at the individual level on their profits. So, that owner pays state and local income taxes at the individual level and then, under the House plan, the owner apparently might still get to deduct the state and local income taxes. The law firm partner (and Donald Trump) would then be unscathed. By contrast, any employee paying state and local taxes on their wages wouldn’t get a deduction.

Kamin’s post displays a bit of uncertainty, with use of the word “might” throughout, because he wasn’t entirely certain that this was the intent of the bill’s authors.  However, the spokesman for the committee that wrote the bill has since confirmed that this was indeed their intention.

[Here’s a shorter and more sarcastic explanation of what Kamin discovered, if you just want to get the gist of it without having to read his whole post].

So, not only does this very clearly benefit Trump himself, it disproportionately benefits the wealthy in general.  Of course there are plenty of business owners who are squarely in the middle class or even struggling to get by.  But the benefit of this loophole will overwhelmingly go to the wealthy: law firm partners, investment fund partners, real estate investors, etc.   For them, the valuable SALT deduction will not end, while for their employees, it will.

And the most significant thing to understand about this is that this deduction (along with numerous other deductions) is being eliminated to pay for tax cuts that will also overwhelmingly benefit the very wealthy (in fact, some middle class Americans will even see a tax increase).  That’s what makes this an especially audacious play by the GOP.

And this isn’t about demonizing the wealthy.  I know that’s a deflection Republicans like to use whenever criticisms such as these arise.  But it’s not about that.  No one is suggesting that these business owners or investors who will benefit from this provision have done anything wrong.  No one is suggesting that they don’t work hard for their success.  But the point is that millions of employees across the country also work hard.  So why the different tax treatment here?*

And maybe there is a good reason for writing the provision this way (though Kamin doesn’t seem to think so).  But if there is, then Republicans should tell us about it – explain why it makes sense for the partner in a law firm to be able to deduct those taxes but not the associates, for the owner of the department store but not his sales staff, for the dentist who owns her practice but not her dental hygienist.  Or the police officer, the soldier, the teacher – why no deduction for them?? If that’s what Republicans think is best for the economy, then they should say it and make a good faith argument to back it up. They should tell us what the bill really does instead of repeatedly insisting that it’s a middle class tax cut.

But Republicans won’t be telling us any of that.  They won’t be explaining anything about their bill – their bill which will affect the entire U.S. economy.  They’re rushing to pass their bill as quickly as possible, before anyone has a chance to really understand what’s in it.  They’re rushing to put it to a vote in the House next week (after just unveiling the bill last week) without holding any hearings or getting any testimony from outside experts beyond the initial committee process.

So, it’s not just that they’re not talking to us – the public – about the details of the bill.  They’re not even examining the bill closely among themselves, once it gets outside the tax writing committee.  Most Republicans haven’t even had any input on the bill.  And they’re getting almost no input from outside experts on how the bill will impact the American people or the U.S. economy.

So we’re very lucky that there are diligent experts in the public sphere, like Kamin, who are able to pore through the bill’s details in a very short amount of time.  But when he finds a surprise like this one, how are we supposed to have faith that the bill’s authors have good, legitimate policy reasons for the choice they’ve made?  How are we supposed to have faith that they even fully understand the real world impact that choice will have?** And how do we know that there aren’t dozens of other bombshells lurking in the pages of this bill that the experts just haven’t had time to find yet – and may not have time to find until after the bill passes??

*****

NOTES:

*Just a month ago, Trump himself claimed to be unhappy with the idea of ending the SALT deduction because it would hurt “some middle-income taxpayers.”  So he said they’d be adjusting the provision, claiming that “a key priority for tax reform is to cut taxes for America’s hardworking middle class families.” But he never made good on that promise, and now the bill is not living up to its billing.

**In fact, today, a day after Kamin wrote his original post, the Joint Committee on Taxation (which is sort of like the CBO but for tax bills) came out to say, nope, the provision doesn’t work this way.  In other words, their reading of the language says that it wouldn’t do what Republicans want it to do. But the Republicans who actually wrote the bill are still insisting that it does.

So Republicans are barreling toward a vote on this bill, yet no one is even clear on what exactly the bill would do.  And this is just one provision in a vast, far-reaching bill that has only undergone the most minimal scrutiny.

2 thoughts on “Worth Their SALT?

  1. Irwin Ettinger November 8, 2017 / 7:32 am

    The rules are still very unclear but your interpretation is certainly plausible. !!! Papa

    Sent from my iPad

    >

    Like

    • DC Deciphered November 8, 2017 / 9:23 am

      Well I can’t take credit for the interpretation of the rule. For that I just followed what the law prof said!

      Like

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