There is a debate inside the Republican House about how high the IRS tax deduction should be for state and local taxes paid (SALT).
Regular readers of the HOTLINE know there is no economic rationale for allowing taxpayers who freely choose to live in high-tax blue states and cities to deduct these taxes. The correct tax deduction number is zero - which should be accompanied by lowering federal tax rates.
The current law allows a deduction of up to $10,000, and the leadership has agreed to raise that amount to $20k. We can live with that compromise. Since 91% of tax filers don't itemize their deductions, the only people who benefit from raising the SALT cap are the very rich.
But some of the blue state Republicans now are holding out for a $50,000 or $100,000 deduction amount. They are threatening to vote "no" on the tax bill even though allowing the repeal of the 2017 tax cut would RAISE taxes on about 80% of their own residents. This strategy makes no sense to us.
The leadership in the House and Senate should stay firm on policy. The table below shows that this plan would provide a giant tax giveaway for millionaires and billionaires who almost exclusively live in blue states and cities. Of the top 25 districts affected by SALT, all but two are blue.
This is bad economics and even stupider politics.
