Rich Californians have most to gain if Congress lifts cap on local tax deductions, report says
California’s rich will get a lot richer next year if the cap on state and local income deductions from federal income tax is lifted, a new study has found.
But the bottom 40% of taxpayers, those earning less than $51,700 would see no benefit.
State residents earning more than $992,800, California’s wealthiest 1%, could see an average savings of $98,650 in 2022, according to data from the Institute on Taxation and Economic Policy, a Washington-based economic analysis firm.
Overall, Californians would save $33.4 billion next year if the SALT limits are lifted—with $17.4 billion of that going to people who make the state’s top 1% of incomes. Another $14.4 billion would go to the rest of the richest 20%, people earning between $151,100 and $992,800.
The Republican-authored 2017 tax law slapped a $10,000 limit on state and local deductions from federal income tax. Since then, lawmakers from high-tax states, including House Speaker Nancy Pelosi, D-Calif., and Gov. Gavin Newsom, have urged repealing the cap
The new study illustrates how huge the change would be for California. Overall, it estimates, taxpayers would save about $101 billion nationwide — and one-third of those savings would go to Californians.
They have some hope for progress this year. President Joe Biden is expected to propose changes in the federal income tax that would increase rates on the wealthy. Some House Democrats have suggested they won’t back any changes unless the SALT limit is raised.
The White House is listening. “We expect members to continue to bring forward ideas, including around issues like SALT, and that will be a part of the negotiations moving forward,” Press Secretary Jen Psaki said Thursday.
The Democrats’ concern is that by lifting the cap, they’d contradict the very point they’ve made for years, that the wealthy don’t pay enough in taxes.
Republicans have signaled they won’t let Democrats forget what lifting the SALT cap means.
“Removing this cap would be a massive tax CUT for wealthy people in high-tax states like New York and California. This two-faced move by Senate Democrats shows in no uncertain terms that they are not looking out for the little guy, but special interests and their limousine liberal donor base,” said a statement last week by the National Republican Senatorial Committee.
The ITEP data show that in California, the rich would fare much better than others if the cap was off.
“While this policy seems to have been designed to target “blue states” with higher state and local taxes rather than for sound policy reasons, simply repealing the SALT cap, as some congressional Democrats have proposed, is problematic,” said Steve Wamhoff, ITEP director of federal tax policy.
The organization’s findings (all savings figures are averages):
▪ Income between 0 and $51,700 (lowest 40% of incomes), no change in taxes.
▪ Between $51,700 and $83,200 (middle 20% of incomes), $30 saved per tax return.
▪ Between $83,200 and $151,100, (fourth 20% of incomes), $410 per return
▪ Between $151,100 and $358,700 (next 15% of incomes), $2,570
▪ Between $358,700 and $992,800, (next 4% of incomes), $10,690
▪ Above $992,800 (top 1% of incomes), $98,650.
This story was originally published April 11, 2021 at 5:25 AM.
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