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Comment by pksebben | Hacker News Reader

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FWIW, that law also capped the SALT deduction (a deduction which almost exclusively benefitted the rich), and increased the standard deduction, which was a huge benefit to most normal people.

Say what you will about the other parts of it, but it didn't fall cleanly on party, plutocrat or ideological lines. The fact that the GOP effectively raised taxes for a big chunk of the moderately wealthy was a weird change of pace.

I think it’s not a weird change of pace at all, the SALT deduction was mostly enjoyed by people with high state and local taxes, which are mostly blue states. A policy that gives wealthy people in Texas and Kentucky loopholes while raising taxes on residents of California and New York seems fairly partisan to me.

It didn't raise taxes on people in California and New York - California and New York did that. It's just that until that law passed, those states were able to hide this by cutting into federal tax receipts via the SALT deduction.

Why should the federal government subsidise runaway state taxes though? Which colour states does that advantage? And what kind of incentive does that create for states?

If the residents of California and New York want lower state taxes, I strongly encourage them to lobby / vote for lower state taxes, rather than demanding to be subsidised by poorer states.

Edit: I'm seeing responses to things I'm "suggesting" or "essentially arguing", but which actually appear nowhere in what I wrote. My comment is about the SALT deduction.

That’s a very odd take, California and New York heavily subsidize poor states via federal taxes.

So you’re essentially arguing “Poor/Red” states need an even larger handout from “Rich/Blue” states.

As to lowering state taxes, high taxes are a major reason rich states are rich. People want the services those taxes provided.

I disagree with this bitching that rich states are “subsidizing” the poor “handout” states through federal progressive taxes. This is how progressive taxation is supposed to work, and it would be clearly insensitive and arguably incorrect for a rich individual in the rich state to complain that he is subsidizing the poor person in a poor state. Rich states collect rents from winner-take-all markets that serve the nation, and it is good pro-equality policy to return some of the wealth back with the rest of the country to reduce inequality and promote opportunity.

Edit: to respond to the comment below: I’m not arguing that local taxes should be low; in fact, I think property taxes should be much higher and fairer in California. My point is that the federal government should not provide a federal tax break for local spending e.g. on education. The coasts already do too much opportunity hoarding.

What bitching? My comment was purely descriptive.

The winner takes all nature is a result of those high taxes and the services they provide. Arguing for lower state taxes in rich states is arguing to destroy the very thing that enables these subsidies in the first place.

NYC for example couldn’t survive without the infrastructure its taxes pay for.

Do you also agree with the assessment that the highest income earners heavily subsidize the poor? Because that's the same reasoning behind the "blue states subsidize red states" trope.

The federal balance of payments with the various states is a function of tax receipts from that state against federal spending in that state. States with lots of high income earners will, by progressive taxation, naturally contribute more to the federal pool. States with lots of recipients of federal benefits, on the flip side of the coin, naturally receive more from the federal pool. There are outlier states on either side.

Looking at 2019 data as the last "normal" year (since post-Covid, every single state received more in federal spending than they gave in taxes), Connecticut, Massaschusetts, and New Jersey (all blue states) are the clear outliers in per-capita balance of payments, where each resident in net gave north of $2000. Among outliers in the receivers, Kentucky, New Mexico, and Virginia (one red state, two blue states) stand out . KY I'm not sure why, but NM and VA are clear destinations for lots and lots of federal spending, with many federal programs being run in those states. California is touted as "paying" for a lot of stuff, but on a per capita basis it was only about $300.

Among the rest, there are a good mix of red states and blue states that receive more than they pay. Alabama? Red state, net recipient. Maryland? Blue state, net recipient. Utah? Red state, net payer. Washington? Blue state, net payer.

That having been said, the implicit argument behind your point is that blue states are rich because of their blue policies and red states are poor because of their red policies. I have yet to be convinced of this.

There are many ways to slice and dice these numbers.

Work out how much that 300$/year from birth would add to someone’s retirement and say it’s not a lot of money.

Real estate taxes are a necessary expense to earn income in the first place, and therefore make sense as a deduction.

It's the multitude of exceptions that prevent individuals from deducting necessary and customary expenses required to earn their income that are the problem. Glaringly - a W2 employee needs a car to get to work? Or more recently, a W2 employee needs a home office to work remotely? The tax code says fuck em, they can pay for those twice!

The disparity is why the plebs get all uppity when some ragebait article highlights some seemingly-ridiculous expense that businesses write off. When the right answer is to make it so that individuals can deduct expenses the same way businesses do.

Why don’t poorer states stop being subsidized by CA and NY? Why are you only suggesting changes to blue states? Do you have underlying motive?

I think a more honest take was it leveled the playing field by removing a loophole. I think it's hard to argue that the deduction was anything more than pandering to rich people in blue states...

It always made sense to me as a subsidy to states and local municipalities, who would otherwise might rely on a much more inefficient process of asking for federal funds to make obligations to their citizens like schools and infrastructure a reality. The rich people can (and often do) move for tax reasons, so I don’t see it as a handout to them. I do see it as a subsidy to states who want to run more of their own infrastructure and function as the “laboratories of democracy”

> The fact that the GOP effectively raised taxes for a big chunk of the moderately wealthy was a weird change of pace.

It was a genius political move, because it also mostly only affected rich people in Democrat led states. If Democrats want to get rid of it, they would have to explicitly campaign to lower taxes on the top 20% of income/wealth, which would not be a good look for them.

> "it also mostly only affected rich people in Democrat led states"

Please could you explain why? (Assuming it's not just that Democratic states have more wealthy people?)

edit: thanks for the replies!

Democrat led states have higher state and local taxes. Some of it due to policies that redistribute wealth, some of it due to mismanagement of the state.

Edit: also, Democrat led states have higher land prices, so generally, percent based taxes like property tax will be nominally much higher and hit the SALT deduction cap quicker.

It disproportionately punishes richer people in states with higher taxes (usually Democrat led) compared to richer people in states with lower taxes (usually Republican led), giving more incentive for richer people in states with higher taxes to either vote for lower taxes in their own state (i.e. vote Republican), or move to a state with lower taxes (a Republican led state).

> Democrat led states have higher state and local taxes.

“More concentrated on higher-income earners” is both more accurate, and more relevant to the effect of the SALT limit (though having higher average income is also relevant to the SALT limit, overall tax burden and distribution across the income spectrum aside.)

E.g., R-trifecta Iowa has a higher overall tax burden than D-trifecta California, but substantially lower high-end taxes. [0][1]

[0] https://wallethub.com/edu/states-with-highest-lowest-tax-bur...

[1] actual total state & local tax burden by income is hard to find, but top income tax rates are indicative here: https://turbotax.intuit.com/tax-tips/fun-facts/states-with-t...

Do high earners consume progressively more proportion of their income in public resources than the poor? Why would you jack up their tax rate? Also note you picked the literally only one of 11 states in [0] above California that is (R).

Because high earners are rich people but not rich enough to be capitalists. So they get screwed and somehow capital gains isn’t blamed or tax loopholes but poor people.

Edit: my context was about taxes in general not specific enough to SALT

> Because high earners are rich people but not rich enough to be capitalists

“High earners” includes capitalists; one of the reasons the SALT cap hits hard in California is that California not only has the highest high-end income tax rate, it (unlike many states and the federal government) taxes capital gains as normal income, not at a reduced rate. Both parts of this policy are things that the SALT cap is designed to put pressure against.

The SALT cap, not the state and local taxes it targets, is pro-capitalist and anti-worker.

Ah thank you. You corrected my misconceptions in a few lines. Welp I hate it now! Thanks for solidifying my view.

> Please could you explain why?

Because instead of eliminating deductibility they capped it, and Democratic states in general have more people with state and local taxes above the cap, because of a combination of higher average income and more progressive state taxes (often characterized as higher, but even when this is true in overall tax burden, its often still lower for same-income taxpayers for low- to moderate-income.)

Because blue states have both the highest state/city income taxes, property taxes, and home values. The changes reduced the ability to subtract those things when determining federal taxes.

Cities almost always vote democratic, the bigger they are, the more true it is.

Cities have high cost of living, and also tend to have high income earners. So tax burdens (and incomes, and expenses) tend to be much higher. In some cases, 5-10x higher.

The largest cities in the US are also in democratically controlled states with high taxes.

SALT allowed many of those high earners in those states to offset some of the tax burden by offsetting their federal taxes. Essentially moving tax revenue from the fed to the state.

So the GOP managed to screw over the primary fundraisers of their opponents and increase tax transfers to the federal gov’t at the same time by capping SALT.

Most of their supporters (and all their key votes) are in rural areas with lower cost of living (and often state taxes) which generally fit well under the cap.

> SALT allowed many of those high earners in those states to offset some of the tax burden by offsetting their federal taxes.

More accurately, before the limit, SALT excluded all covered state and local for the purposes of federal income tax, keeping federal tax policy neutral on state tax policy.

With the limit, there is a cap on the absolute amount of state and local taxes per person that get that treatment, creating a federal tax penalty for both strongly progressive taxes (which concentrate tax burden on a smaller number of rich taxpayers) and state economic success (which, for any tax policy less regressive than a straight capitation, increases the absolute tax liability per individual.)

Eh - that’s what we like to say to ourselves, but the first part isn’t true I think.

For instance, for pre-cap SALT to have resulted in a truly neutral federal tax policy, it would have had to not existed at all and have federal taxes be unaffected by state taxes.

Since it did exist, assuming a population has some fixed amount of taxes they consider ‘too much’ and all gov’t actors are looking to maximize towards that limit, it incentivizes states to take as much as they can, since the federal taxes ‘give way’.

The cap basically says ‘eh, we’ll let you do that, but only so much’. The ‘how much’ just so happens to still benefit their constituents while not helping their opponent’s constituents.

Which yes, has those effects you are stating, as their constituents tend to be more rural, which tends to have less economic activity in general, have lower incomes, etc, and hence aren’t hurt in the same way.

Though many of their donors tend to have higher incomes, and I imagine it took some convincing that it was worth taking a potential hit to ‘stick it to the libs’.

The states with the highest local tax burden are the most progressive states. A $180,000 fixer-upper in my town already exceeds $10,000 in property taxes. Like 80% of that is school tax. Rather than beg for federal money to educate our children or shortchange them by cheaping out, we pay for it ourselves. Rather than beg for federal money to fix our pipes, we fix them before they utterly fail.

The lowest tax burden states have the worst schools, poorest health outcomes, crumbling infrastructure, and expect the federal government to bail them out. Forget that, I'm tired of subsidizing the lazy states.

Where is this? I have never heard of a 5.5% property tax rate in the US. Most I have seen is NJ/IL cities at 2.5%, maybe 3%.

Its a genius political move because you can sell opposing it as serving the rich, while the primary effect (and the entire intent) is to create political pressure on states to transfer tax burden from the rich downward to the less rich.

The SALT deduction did not mostly benefit the rich. It benefited people who live in states that actually provide services to their constituents.

...who mostly happen to be rich. Particularly if they make enough money and/or pay enough in tax to hit the cap.

It was a middle class tax increase for California and New York.

You can say that, but no, it's for certain parts of those states, and middle class for those parts of California and New York is de facto rich for most of the country.

I say this as someone who would actually benefit from the deduction. Do I swim in my Scrooge McDuck coin vault every evening? No. But I'm not going to pretend that I'm not well-off.

The standard deduction is IMO a load of crap. With a large standard deduction, only high-income people can make tax-deductible charitable contributions.

The right way to do it would be to make the standard and itemized deductions additive.

I make tax-deductible charitable contributions all the time. They're not tax-deductible for me, but I don't judge my charitable giving solely on whether I am able to ultimately deduct that particular donation from my taxes.

How is the standard deduction stopping non high income people from making tax free charitable contributions?

I thought all charity is deductible from taxable income.

Because you're better off taking the standard deduction so you have no tax incentive to make charitable contributions.

Yes, that I knew. I would not summarize that as

> only high-income people can make tax-free charitable contributions

Okay, so you can donate $100 to charity, feel warm and fuzzy because it’s tax-free or however you want to think about it, and pay exactly the same amount of tax as if you didn’t give the gift.

Right. You can also create a charity, which you run, and donate millions of dollars to it, and write that off against your taxes as a charitable donation.

Then, because you run that charity, you can still spend the money (mostly) as you please.

Exactly. But the point here is this is only available to people who wish to donate more than about $13k per year.

Yes, that's how the standard deduction works.

You can’t deduct charitable donations unless you don’t take the standard deduction. Instead, you must itemize your deductions. In practice this means you take the standard deduction because most people don’t total more than the standard deduction when they itemize (you have to be decently rich to afford to donate that much!).

Last year you could deduct up to $300 in donations on top of the standard deduction, but I didn’t see it this year.

> In practice this means you take the standard deduction because most people don’t total more than the standard deduction when they itemize (you have to be decently rich to afford to donate that much!).

Charitable donations aren’t the only itemizable deductions.

Ok, I’m sorry for not enumerating all possible itemized deductions when we’re talking about charity specifically.

However, charity is probably the most well-known deduction that you can control (in contrast to stuff like state taxes, which are more or less predetermined). And even among the deductions you control, those deductions require some spending. Can a non-rich person really spend enough to itemize beyond the standardized deduction? If you know how, please let me know because I’ve never gotten close to the standard by itemizing! Even when I’ve had large purchases to compute sales tax for I’m still far away.

Otherwise, it’s pretty clear that, generally speaking, charitable donations aren’t helpful for reducing one’s taxes. I’m sure people donate because they want to, but the tax benefits are not part of the calculus.

How do you donate $15K if you’re not high income? If you donate $2500 nothing changes. You pay taxes on it.

Really no charity is deductible except rich people charity.

Why does this matter? A $100 deduction in income has a very, very, very small effect on your overall tax liability.

If we look at the amount of money people earn, pay taxes on, and how wealthy they are, many patterns show up. Including rich people donating to avoid taxes and poor people without much income not being able to deduct $1K. Or $2K. Pick any number. $100 is the unimportant part.

I changed the number to $2500 if that makes it easier. That does dilute the importance because a lot if not majority of the country can’t donate $2500 extra a year from their current budget and income.

Say you can afford to donate $x. If it's tax deductible, you can then afford to donate $x / (1-T) where T is your effective tax rate.

Turns out there's a workaround for people who have pass through companies (LLCs and S-Corps). If you pre-pay your state taxes from your company those will be excluded from the new, lower deduction cap.

Wild.

s/moderately wealthy/already highly taxed/g

Fuck that noise about capping the SALT deduction. Seriously. I live in a place that has high property and state taxes because we pay our fair share to give residents of my state a decent life. Property taxes for fixer-upper starter homes in my area exceed the SALT deduction cap. The cap hits people who are "moderately wealthy", but that definition of moderately wealthy cuts into what is decidedly the middle class.

You can try to twist it like it was some win for the working class, but it was aimed smack at blue states as a punishment for doing the right thing.

Good schools, effective municipal services, and so on. The bullshit federal money sucking states, with their lower property and state taxes, discovered it's easier to just get the federal government to pay for your stuff. Poor people do worse, rich people do better.

> I live in a place that has high property and state taxes because we pay our fair share to give residents of my state a decent life.

What if the high taxes are because politicians and union leaders from decades ago promised lavish post retirement benefits to government employees in exchange for low taxes, then underfunded the savings and/or made corrupt investments, and now find themselves taking taxes from taxpayers today to pay for labor performed decades ago?

See IL/NJ/CT.

Also, in NJ’s case, high taxes because of 500 different governments with redundant police/schools/fire/other government employees.

Most of those raises on the moderately wealthy will expire December 31, 2025, the ones on the middle class won't

The SALT deduction cap definitely raised taxes for me and I wouldn't call myself any kind of rich. As a Massachusetts resident I took it for what it is, an attack on people that live in blue states. I am sure it gave D.T. a deep sadistic pleasure to claim "I lowered your taxes" knowing he raised them for millions of people. The cap is fundamentally unjust since I am paying Federal Tax on money that I use to pay taxes to city, state etc.

If the fact that gifts above 14K a year are taxed sends you to the barricades, you may want to check which side of the barricades you’re on.

Gifts above $14k are not taxed in the US. Currently, you have to give away $13M+ in your lifetime before you are subject to estate tax.

The French, despite having a bad rap, have it right.

Their government fears them, not the other way around. And they don't even use guns.

Careful now. "Intellectuals" don't tend to do very well when things go that way. A heck of a lot of them will wind up losing their heads along with the elite. Techies, journalists, and other well-ish off white collar cogs in the machine would do well to think a little more about what people outside their bubble think about their profession's effect on society.

It's OK, the TCJA was from the party they oppose, so they don't mind you bad-mouthing that law. You had better not question the ACA or the "inflation reduction act."

Slow your roll. You have no idea who I am or what I stand for - and I'd bet we're more aligned than you think.

I'm of the opinion that both parties have been captured by criminals, so even if you fall on partisan lines, we agree on at least half. The ACA was a distraction tactic so the banks could rob us blind and the inflation reduction act isn't a lot better - so great, the top 1% are gonna pay 0.2% more in taxes. Whee.

The solution isn't to back the lesser evil, it's to stop backing evils altogether.

This. Y'all need to read more history.

The interesting history is people will behead even themselves to get at the elite. See everyone in Zim / Rhodesia driving out the farmers that they surely knew they needed to eat, followed by utter destruction of their foodstocks and hyperinflation.

Not only that, merely naming their laws with words that are opposite to what they do appears to completely take the heat off them.

Er, there have been several elections since 2017, when that bill was passed. The Republicans had control of the Presidency, House, and Senate in 2017. They eventually lost all three, but recently gained back the House. Locked up the Supreme Court though.

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