Last year’s abhorrent tax cuts, passed by Congress and signed into law by President Donald Trump, have predictably already given way to House Speaker Paul Ryan and other Republicans coming for entitlement reform. In response, Democratic governors and legislators in the few states they actually have power in are focusing on helping those who the tax law hurt most.
That’s right, we’re talking about the rich!
The AP reports that Democrats in high-income blue states are launching an attack on the new $10,000 cap Republicans put on deductions for state and local income taxes. Previously, people could deduct all of their state and local income taxes from their taxable income, and in states like New York, high-income earners took full advantage of that: in 2015, the New York Times reported last year, the average SALT deduction in that state for people making over $200,000 was just under $85,000.
According to the AP, Connecticut, California, and New Jersey — three of the eight states where Democrats control both chambers of the legislature and the governor’s mansion — are planning on suing the state over the change in the deduction.
In addition to legal action, the California Senate has passed a plan that lets residents make charitable donations to a state-run nonprofit in exchange for a tax credit up to 85 percent of what they contribute, which has been flagged by IRS experts as potentially not legal. And in New Jersey, Gov. Phil Murphy — a man who made $4.6 million in 2016 — is pushing a plan that would “let local governments and schools set up charity funds,” and those who donate would receive tax credits toward their property taxes.
The reason Democrats are giving for trying to find a workaround for the wealthiest people in their states? They’re afraid all of the rich people will leave if they don’t. The AP says California Senate leader Kevin de León, who’s currently running for U.S. Senate himself, told them that “the state budget would take a big hit if wealthier residents flee California because they pay the bulk of the taxes.” Normal economy.
The move to cap SALT deductions in the new tax law was widely seen as retribution against blue states, given that the top ten states benefiting from the deduction were all states that voted for Hillary Clinton. But that doesn’t mean the deductions themselves were good. “If you eliminate the cap on tax deductions, rich people who are already getting a tax break would be getting a bigger tax cut,” Steve Wamhoff, of the Institute on Taxation and Economic Policy, told the AP.
Here’s a better idea that Democrats likely won’t take seriously: run on repeal and replacing the tax law, and maybe — just maybe — taxing those high earners more.