Four years ago, Republicans ruled the roost in Washington. As expected, they pushed through a signature tax-cut program. Highlighted by a steep drop in corporate rates, it was projected to reduce federal revenues by an estimated $150 billion per year, or $1.5 trillion over 10 years.
Not all types of taxpayer came to benefit. Many people in Democratic-dominated states who consider themselves middle class, or maybe upper middle class, absorbed a one-of-a-kind hit: They lost the ability to deduct state and local taxes (SALT) from their federal income tax bills.
The regional and partisan politics of this arguably punitive partisan move were never subtle. President Donald Trump and the House and Senate majorities were quite aware that communities like those on Long Island with costly real estate, that provided schools with solid teacher pay and offered other robust services, would face the resulting fiscal pressures of losing the federal break SALT offered.
According to the congressional Joint Committee on Taxation, the mainly red-state GOP movement to cap the SALT deduction at $10,000 mostly affected filers of itemized deductions who reside in New York, California, New Jersey, Maryland and Connecticut. In contrast, it least affected North Dakota, South Dakota and Wyoming.
So in this, the first year of the Democrats’ return to national power, at least a partial SALT revival is rightly expected. Little about the regional alliances on the issue has changed since 1985 when the Republican Reagan administration proposed killing SALT and Democratic lawmakers led by New York Sen. Daniel Patrick Moynihan succeeded in beating back that repeal, which they argued threatened to impose "double taxation" on the same income for the first time.
Back then Treasury Secretary Donald T. Regan, no foe of the wealthy, was quoted as saying "my heart will not break" for the middle- and higher-income New Yorkers who faced paying Uncle Sam more. Decades later, Trump ultimately ignored appeals from fellow real estate moguls in his home state not to decimate SALT.
MOMENTUM TOWARD RESTORATION
Now, finally, momentum at the Capitol runs in favor of a partial return to SALT, with Long Island and New Jersey key backdrops in that drive. But just what form of restoration might prevail, and how far it will reach, remains unsettled.
Unfortunately for SALT supporters, it was never as simple as the Congress and President Joe Biden bringing back the deductions as they'd always existed.
In a Congress with thin Democratic majorities, too many lawmakers weren't sold on strengthening SALT, although doing so stood to gain support from blue-state Republicans.
So on Nov. 19, after months of backroom back-and-forth, the House approved a provision in the big Biden expenditure bill that would raise the SALT deduction cap from $10,000 to $80,000. With that, Reps. Tom Suozzi of Glen Cove and Josh Gottheimer and Mikie Sherrill of New Jersey rightly proclaimed some success for their "No SALT no deal" effort.
Next, however, comes the Senate where Majority Leader Chuck Schumer has pushed and prodded for the SALT revival. With a bare partisan grip on the majority, though, everyone in his caucus has effective veto power.
Initially, Senate Budget Committee Chairman Bernie Sanders (I-Vermont) dismissed SALT as a benefit for the wealthy. But then reality broke through. Part of that reality: A suburban family here must earn far more than they would in Nebraska to have the same standard of living, and SALT effectively helps provide for local government services. Sanders and other progressives in Congress were talked out of complete refusal.
COMPLEX NEGOTIATIONS AHEAD
Still, Sanders and Sen. Bob Menendez (D-N.J.) want to make it less of an alleged break for the wealthy. Red-state Democrats in the Senate such as Joe Manchin of West Virginia and Kyrsten Sinema of Arizona also reportedly want to revise the plan.
So now the march back to SALT demands a new round of intricate negotiation. Sanders proposes lifting the SALT cap only for those with incomes below $400,000; Menendez would make that $550,000.
The top 5% of earners, estimated to make upward of $365,000 a year, would reap about 70% of the benefits of the House plan and about 41% of Sanders’ proposal, the left-leaning Tax Policy Center said.
The right-leaning Committee for a Responsible Federal Budget says eliminating the SALT deduction cap for those earning $500,000 or less would sacrifice $150 billion to $200 billion in federal revenue over five years, or $30 to $40 billion per year.
Other estimates are circulating among pro-SALT advocates. For Long Island, nearly all itemized-deduction filers would benefit from the House plan — while perhaps 9 of 10 would gain under an alternative, progressive plan. Strictly from the viewpoint of number of taxpayers affected, the House version would be preferable.
Perhaps elements of both SALT-revival models can be blended into a sort of hybrid agreement amid the many other moving parts of the Build Back Better Plan. Perhaps not. Constricting eligibility too much would render this long journey to SALT deductions disappointing.
Whatever the means, Long Island demands the kind of unique tax help that restoring SALT would offer. Our elected officials need to keep up the urgency until New Yorkers receive meaningful relief.
MEMBERS OF THE EDITORIAL BOARD are experienced journalists who offer reasoned opinions, based on facts, to encourage informed debate about the issues facing our community.