Donald Trump wants to restore big tax breaks. Would it help wealthy Californians?
Making a six figure salary in California? Chances are that since the 2017 changes in tax law, you’ve lost a big tax break because you can’t deduct all of your state and local taxes.
Now former President Donald Trump, who pushed for the law that implemented the 2017 changes, says he’ll reconsider if he wins a second term..
“I will turn it around, get SALT back, lower your taxes and so much more,” he said on his Truth Social website last week.
SALT stands for state and local tax. As part of the 2017 tax law, which many analysts consider Trump’s signature economic achievement while in office, the deduction was capped at $10,000 per federal income tax return. Previously, the deduction was unlimited.
The impact on higher income earners was swift and expensive, particularly in higher tax states such as California.
A study by the Institute on Taxation and Economic Policy, a Washington research group, found that in California, the impact on the lowest 40% and middle 20% of income earners in the state — those earning up to $83,200 — was negligible. But as incomes climbed, so did the amount of lost tax breaks: ITEP found that for those earning between $151,100 and $358,700, their loss averaged $2,570.
Those making between $358,700 and $992,800 lost an estimated $10,690; for those with incomes above $992,800, the break would have been $98,650.
California’s lost tax breaks
In Sacramento County, average state and local taxes per itemized taxpayer totaled $16,235, according to an analysis by the Tax Foundation in Washington that used data from tax returns in 2020,
Also hit hard by the $10,000 limit were taxpayers in El Dorado County, whose taxes totaled an average of $22,607. The highest average deductions in California were in San Mateo County, $81,508, and San Francisco County, $77,313;
In the Central Valley, state and local dedication averages per itemizing taxpayer were $17,419 in Fresno County, $19,484 in San Luis Obispo County, $13,220 in Merced County and $15,898 in Stanislaus County.
That the break could be a windfall for higher income earners has been a big reason efforts to repeal the 2017 provision have stalled. So has the cost of doing so.
But with Trump behind repeal, the attitudes could change if he wins the White House. Much of the 2017 tax law, which made several big changes in income tax law, will expire at the end of 2025.
Vice President Kamala Harris, the Democratic presidential nominee, has said she would back a tax overhaul that assured no one earning less than $400,000 would pay more in taxes. Among her ideas are an expanded child tax credit and a higher corporate income tax.
Her campaign did not respond to a request for comment.
Could a SALT revival happen?
While it was difficult to find anyone optimistic that the SALT cap would be lifted, key policymakers also would not rule out a change.
“I can’t predict how that would be received in the overall Senate, but I can tell you we’re doing a deep dive on everything, and next year … the entire tax code is going tot be reviewed,” said Sen. Mike Crapo, R-Idaho, top Republican on the tax-writing Senate Finance Committee..
While Crapo said he prefers extending the current limits on SALT, “everything is negotiable.”
Democrats had the same thought.
“It’s all going to be negotiated. States like New York and California, we’ll raise (the issue),” said Rep. Ami Bera, D-Sacramento.
He said that California uses its taxes to improve education, infrastructure and other projects, “We should not be penalized for that,” he said.
The biggest obstacle is that lifting the cap clearly helps the rich the most–and Democrats, including Harris, have urged requiring wealthier people to pay more in taxes..
“Democrats have been hammering Republicans on the 2017 tax bill, on giving everything to the rich. Whoever makes this suggestion is being very intellectually dishonest,” said Sen. Charles Grassley, R-Iowa, the second-ranking Finance Committee Republican.
Bera figured that restoring unlimited deductions was probably not going to happen. For years, some supporters of lifting the deduction cap have proposed allowing it only for people earning lower incomes.
“It’s all going to be negotiated,” Bera said.
This story was originally published September 24, 2024 at 1:47 PM.
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