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April 20, 2022

Supreme Court Rubs SALT in Blue States’ Fiscal Wounds

The Court allowed the 2017 GOP limit on state and local tax deductions to stand.

On Monday, the Supreme Court refused to hear an appeal by several high-tax blue states to eliminate a $10,000 annual income tax deduction for state and local taxes, collectively known in the accounting world by its acronym, SALT. That refusal means the decision of the Second Circuit that went against the states last fall will stand.

Led by the state of New York — which was initially hit hard financially by the SALT limits — attorneys general from the Empire State and three other high-tax states (Connecticut, Maryland, and New Jersey) argued against the limitations on SALT imposed in the Tax Cuts and Jobs Act of 2017. Disgraced former New York Governor Andrew Cuomo once falsely claimed the Republican tax cut “literally restructured the economy to help red states at the cost of blue states.” The truth is almost exactly the opposite — low-tax states subsidize high-tax ones via this deduction.

The states “alleged that the SALT cap violated the U.S. Constitution’s principles of federalism under the Tenth and Sixteenth Amendments and exceeded Congress’s taxing power under Article I, Section 8,” according to Paul Bonner’s explanation in the Journal of Accountancy. “Specifically, they claimed in their suit that a balance of power between the states and federal government depended upon preserving the SALT deduction’s special historical status, a balance upset by the cap’s ‘targeted coercion’ compelling them to alter their own tax policies. Alternatively, they argued, the SALT cap unlawfully impeded them and other states from exercising their sovereign powers.”

It’s amazing that the Left likes the Tenth Amendment when it comes to sheltering elite Democrat backers from paying their “fair share.” Yet despite Joe Biden’s dogged opposition to anything Donald Trump did, we have to credit the Biden administration for continuing to defend the law as it stands.

In many respects, though, this is much ado over nothing. Under current law, the SALT provision enacted in 2017 ends after 2025, meaning higher-earning leftists who live in the high-tax jurisdictions they voted for will once again be able to take full advantage of their states’ profligate taxation. Unless Congress dictates otherwise, it will end a saga that began with Democrats trying to double the $10,000 deduction (while simultaneously looking to restore the top tax rate back to the Clinton era’s 39.6%) after regaining the House in 2018, and has continued with yet another pair of proposals in this Congress — one to raise the SALT cap to $80,000 until 2031 that’s passed the House but has stalled in the Senate, and another in the Senate sponsored by Bernie Sanders to cap and phase out the deduction for earners who make over $400,000. It’s quite possible the two proposals may be combined as a gift to blue states before the Democrats are shown the door this fall.

All these so-called fixes for fairness could be added to a taxation system that’s already complicated. Dan Bosch is the director of regulatory policy for the American Action Forum, and he’s taken on the daunting task of tracking what’s now become 6.5 billion man-hours and $209.7 billion that we already spend on getting our taxes done. “The average tax filer spends $242.96 and 12.5 hours on their return each year,” said Bosch.

Passing the changes to SALT may be good news for the blue states, the ultra-profitable tax-return industry, and those in government whose task it is to create more winners and losers while regulating behavior even more. But what about the rest of us? We think it would be better to leave the salt for the French fries and popcorn — in moderation, of course — and instill a simpler tax system that renders unto Caesar only what’s his and doesn’t require a master’s degree in accounting to comprehend.

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