California taxpayers could see big breaks for state and local deductions soon. Here’s why
Middle- and upper-income Californians stand to save lots of money on their federal income tax next year under new congressional plans allowing them to deduct more state and local taxes.
A new plan in the House of Representatives would allow much higher deductions, up to $80,000 through 2030. The current deduction limit is $10,000, a cap imposed in the Republican-written tax cut of 2017.
The proposal is part of the House version of the Biden administration’s $1.75 trillion spending bill. It would permit the deduction to be in effect this year. That means people could subtract their state and local taxes on the return they file next year. It would also extend the break through 2031.
The House expects to vote on the measure Friday.
There’s a different plan being floated in the Senate, which would limit the deduction to the less wealthy, such as those earning less than $400,000.
That’s been a particularly big blow to California, a state with the nation’s highest income tax rates, where 17.7% of taxpayers itemized in 2018.
In Sacramento County, average state and local taxes per itemized taxpayer that year totaled $14,338, according to an analysis by the Tax Foundation in Washington.
Other local areas also got hit by the cap. El Dorado County’s average was $19,344. Placer County’s was $19,246. Yolo County’s was $17,890.
The San Francisco-Silicon Valley area would get a big boost. The average state and local tax reported in San Francisco County per itemizing taxpayer was $57,103. Others in that area included San Mateo County, $55,163; Marin County, $49,593 and Santa Clara County, $46,817.
California tax savings
Other state and local tax totals included:
▪ Fresno County, $16,632.
▪ San Luis Obispo County, $16,536.
▪ San Joaquin County, $14,153.
▪ Merced County, $11,604.
▪ Stanislaus County, $13,861.
▪ Tulare County, $13,127.
SALT resistance
Liberals and independent analysts have complained that the break rewards the wealthy.
“This bill should invest in our families and our future — not provide giveaways for the wealthy few. The House’s SALT proposal cuts taxes for millionaires and billionaires on the backs of low-income and middle-income families. We should fix this in the Senate,” said Sen. Michael Bennet, D-Colorado.
Efforts are underway to provide an alternative to the House plan.
“We’re working on details that come up with a sensible approach which protects the middle class but does not give massive tax breaks to the wealthy,” said Sen. Bernie Sanders, Ind.-Vt.
An analysis by the nonpartisan Tax Policy Center Thursday found the House plan is tilted towards wealthier taxpayers.
The latest plan “would provide little or no benefit for low and middle-income households but generate a substantial tax windfall for those with much higher incomes,” said Howard Gleckman, a senior fellow at the center,
This story was originally published November 5, 2021 at 5:25 AM.
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