The Heroic Congressional Fight to Save the Rich | Hacker News Reader

The Heroic Congressional Fight to Save the Rich

taibbi.substack.com

49 pointsdisgrunt18 comments

Let's say a group of people want to build a park. They get together, form a 501.3.c, decide how much money everyone's gonna contribute, everyone writes it off as a charitable contribution, and build the park.

Let's say a group of people with a government wants to build a park. The get together, vote to decide how much money everyone's going to contribute, everyone ____, and they build the park.

____ is the SALT deduction.

The only reason not to have this deduction is to discourage (non-federal) governments ability to do anything.

Arguments of 'it's free money for the rich' are a misdirection - if you want the rich to pay more money, increase their taxes, don't limit state and local governments ability to collect revenue.

The only hypocrisy is the folks arguing against it will turn around and holler 'States Rights!' when it's politically convenient for them.

> don't limit state and local governments ability to collect revenue.

The cap on SALT deductions does no such thing. All it does is cap how much state and local taxes someone can deduct from their federal taxes. State and local governments are still getting their tax revenues. 90% of tax payers were completely unaffected by this change, the remaining 10%, who make up the highest income brackets, paid more federal taxes as they could only deduct $10K of their state and local taxes from their federal taxes.

> increase their taxes

Capping deductions increases their taxes.

Imagine these scenarios: People want to build a park

Either 1) A local government increases taxes to build a park

2) The federal government increases taxes to build a park

And Either A) A SALT deduction exists

B) A SALT deduction doesn't exist

And independent of this, the federal government collects tax on income to do whatever it currently does.

1A) people end up paying: (income - income.(park tax)).tax - income.(park tax) -for-> park + std_services

2A) people end up paying: (income).(tax + park tax) -for-> park + std_services

1B) people end up paying: (income).tax - income.park_tax -for-> park + std_services

2B) people end up paying: (income).(tax + park tax) -for-> park + std_services

Note 1A, 2A and 2B are all equivalent. In 1B people pay more overall tax to get the same services.

So under B, any reasonable person given the choice between 'should the local government build the park (1B), or should the federal government build the park (2B)', should logically choose 'federal (2B)'.

IE the local government's ability to do build parks is weakened by the lack of a SALT exemption.

Given your example, the rich local tax payer is a direct beneficiary of the park they helped fund through local taxes. Who is the beneficiary of their uncapped deductions? The rich local tax payer is the obvious primary beneficiary, and indirectly the local government may be a benefactor to this uncapped deduction. Meanwhile, the rich local tax payer pays fewer federal taxes, the wealthy area in which this tax payer lives gets a new park, which further increases property values in an already rich area. Rich get richer. What's not to like?

Forgive me if I take the position that if a rich local tax payer wants a park, they should pay for the park and not expect the federal government to allow them to deduct that expenditure. They're directly benefitting from the park. If they don't like the high local taxes, then they can accept the trade-off of living in a lower taxed area. Who knows, maybe the rich person moving to that area will help spread the wealth instead of pooling those tax dollars in a few exclusive areas?

There was no rich/poor distinction in my example.

The only variant is local vs federal funding.

And comments to 'who does the park value more', is irrelevant as well. The park could be substituted with anything with any moral (or immoral) value.

If it cost 10$ in resources to cure cancer for everyone in the world forever, the federal government would be able to do it for 10$, while for the local government it would cost 12$, 10$ to cure cancer and 2$ in taxes paid to the federal government by it's constituency.

There was no rich/poor distinction in your example because you're ignoring the fact that the SALT deduction only comes into effect with itemized tax filings. >90% of the country takes the standard deduction, of which this SALT deduction has no effect. As such, only the highest tax brackets are affected by this cap.

Let's be honest about what this uncapped deduction was, it was a means to disproportionately keep rich tax payers tax dollars in their local areas. The middle and lower classes don't even come close to this $10K cap, nor do they file itemized taxes. Do we really need tax laws to help further the rich enrich themselves?

If you really want to end this double taxation, then I'm all in favor. But it must apply to all forms of taxation and all tax brackets.

This hypocrisy from the folks arguing to reinstate this deduction is staggering.

They are looking out for their own skin. NY and CA are bleeding people with money. People who pay those state taxes but soon won't.

I never thought I'd move for tax reasons. I am moving to TX this year.

Hopefully not to show up and (in)directly vote for more taxes/bonds, and the politicians that promote them.

not even remotely, worry not.

I am a libertarian who was de-facto forced to be here for work. No longer forced -> no longer here

The irony there is I know a lot of native Texans fleeing the state as they see the Californication of Austin spreading and only getting worse.

> NY and CA are bleeding people with money.

Every analysis I've seen is that (1) CA has small net domestic out-migration, but (2) the domestic out-migrants are significantly less well off the domestic in-migrants, and (3) at least before the last couple years (Trump immigration restrictions and then the pandemic probably changed this in the short term, but neither is likely to persist in current form and effect) the net domestic out-migration was more than balanced by international immigration.

California isn’t bleeding “people with money”, its bleeding “Americans without money”. Which is in part a sign of real issues that should be addressed, but its also in large part a symptom of success and the rich outbidding the poor for limited real estate.

The SALT deduction was in place because people are being taxed TWICE. It's very simple. They are taxed on their income by the state, then taxed on that same income by the feds. It's unjust. You can argue all day long who the tax impacts, and how they're all rich or whatever, but that doesn't change this simple fact. What astonishes me is the abject lying happening by folks such as the Heritage foundation. Check out this obviously false statement: "Double taxation occurs when the same income source is taxed twice by the same level of government." Huh?? What does the level of government have to do with anything? How about this gem: "Double taxation does not occur when your income is taxed at the state level to pay for state projects and again by the feds. Taxes at all levels of government should be lower, but this does not mean the federal government needs to subsidize state taxes and spending." Really?? It's astonishing to me how these people lie, then lie some more, then fabricate with straight faces. Check it out: https://www.heritage.org/taxes/commentary/5-myths-about-the-...

It's not clear to me why the federal government should accommodate the state taxation structures. That is, uncapped deductions effectively mean that federal taxes are applied after state taxes. Couldn't states provide a deduction based on federal taxes if they think this is unfair to residents?

> It's not clear to me why the federal government should accommodate the state taxation structures.

There is potentially an argument for no SALT deduction, though I think a lot of factors (including federalism) weigh in favor of it, and that it is on-balance justified; its something on which there is reasonable disagreement.

But that’s not the debate. The debate is between a limited SALT deduction designed to create federal pressure to force the more successful states to adopt tax and spending policies more like the least successful states, and an unlimited SALT deduction that lifts the federal governments thumb off state tax policy.

The real hypocrisy is Congress only cares when the rich are double taxed. Double taxation happens all the time. Corporate taxes and personal taxes on the same income source, personal income tax and sales tax, etc.

> This hypocrisy from the folks arguing to reinstate this deduction is staggering.

The deduction still exists. The current limit on the deduction was adopted fairly openly as way for the federal government to artificially incentivize state tax cuts.

The effort to eliminate that limit isn’t an effort to ”save the rich”, its an effort to save the state taxes that support the state services that are part of the recipe for economic success in states on which the federal government disproportionately relies for tax revenues. Limiting the SALT deduction wasn’t about raising taxes on the rich, it was about increasing federal extraction from certain successful states in the short term, strangling those state governments in the medium term, and—in easily forseeable effect if perhaps not actual intent—torpedoing the national economy and tax base in the long term.)

Removing the SALT deduction cap affects people wealthy enough to still itemize after the standard deduction was doubled in the TCJA. Let that sink in.

The number of people itemizing before the TCJA was about 46m, the number after the standard deduction was doubled is only about 16m. There are about 143m people filing returns in the US (taxpaying units).

So about 10% of US taxpaying units still itemize meaning they're deducting more than $12k individually or 24k jointly.

This issue disproportionately affects the wealthy. The top 10% of income earners are getting bitten by this, and the top 1% especially so.

As the TK article illuminates, the US would lose $600 billion in revenue by repealing the SALT cap. That money comes disproportionately from the top 1% as illustrated by the graph from the Brookings Institute: https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_p...

The article quotes a guy saying the SALT cap was the only clearly progressive tax policy the Trump administration ever implemented.

So yes, it's funny though not altogether surprising to see the Democrat senators and senior House members (all of whom seem to be in the affected income bracket themselves) pitching this deduction for the wealthy as a fight for 'working families'. It is impossible to even entertain the idea unless open to the idea that supply-side, trickle-down economic theory has merit, which is also a humorous dimension of the Democrat rhetoric.

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