A petty tax injustice is close to being erased – if the middle class can avoid being mistakenly labeled as “rich” and undeserved.
Let me explain.
Do you remember the many years of federal tax cuts on state and local taxes that were cleared up four years ago by President Trump and the Republican-controlled Congress?
It can be largely restored as part of President Bidens ‘and the Democrats’ $ 1.85 trillion social safety net bill, which President Nancy Pelosi hopes to bring to a vote this week in the U.S. House.
Before the Trump GOP slaughterhouse, we could deduct all state revenue and local property taxes on federal returns.
But Trump and Republicans set a $ 10,000 ceiling on state and local taxes, called SALT in government speech. Before that, the average SALT deduction in California exceeded $ 18,400.
The State Franchise Tax Board reported that the SALT ceiling in 2018 cost Californians $ 12 billion. The Washington-based Institute of Taxation and Economic Policy has estimated that by 2022, the SALT ceiling on Californians will be $ 33 billion if the law is not changed.
Why was it adopted in the first place? Two reasons.
The higher federal income from personal income taxes was necessary to pay for corporate tax breaks.
For Trump and the GOP, the cap was also a plug in high-tax blue states led by Democrats – states like New York, New Jersey and California.
The then government. Jerry Brown did not waste words, accusing Republican congressional leaders of “exercising their power like a bunch of mafia thugs.”
Governor Gavin Newsom and six other Democratic governors sent Biden a letter in April urging him to “regret the cap.”
The middle class is at the center of the controversy. Some liberal legislators and think tanks argue that lifting the ceiling would be an unjustified giveaway to the rich and to the detriment of the middle class.
Nonsense. But forget about a total repeal.
House Democrats, led by members of New Jersey and including California’s rep. Katie Porter, D-Irvine, pushes to raise the ceiling. The latest target is $ 80,000.
But even if the higher ceiling passes Parliament, it will almost certainly be changed in the Senate.
Late. Bernie Sanders, I-Vt., Chairman of the budget committee, has said the House’s proposal is too tailored to the rich and “is unacceptable.”
Sanders and Senator Robert Menendez, DN.J., have proposed removing the ceiling altogether for taxpayers earning less than $ 400,000. In addition to this income, the $ 10,000 limit would be phased in again.
Falling among the top 20% of California employees hardly means a family is rich. It could hit that mark with a salary of about $ 110,000, the state franchise tax council said based on 2019 data, the latest available. You’re in the top 5% with a family earnings of around $ 270,000 – very comfortable, but not exactly mega-rich in high-cost California.
A SALT change would not only benefit wealthy Californians. It would also benefit many middle class taxpayers.
The state Treasury Department analyzed what a $ 80,000 ceiling would mean for Californians. It estimated that 2.3 million taxpayers would potentially benefit from being allowed to deduct an additional $ 43 billion. Of those taxpayers, 1.3 million earn less than $ 175,000. Their deduction would increase by $ 9 billion.
“It’s pretty clear from the data that a SALT change not only benefits the richer class,” said Treasury Department spokesman HD Palmer. “Hundreds of thousands of California taxpayers whose incomes fall well below the top of the pile would benefit.”
A renewal of SALT “may affect wealthier people more, but middle-income people benefit too,” says the rep. Mike Thompson (D-St. Helena), who has long been pushing to lift the cap.
“I think we’ll get something. It’s not soup yet. It’s still boiling.”
Almost everything would taste better than what is being served now.
George Skelton is a columnist for the Los Angeles Times.
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