John Faso: Rhetoric Vs. Reality

Jul 2, 2019

In the age of 24/7 media, we’re constantly bombarded with news and information, some true and some not so true.  It has always been difficult for the discerning citizen to decipher the political rhetoric from reality, and a new report this week illustrates this point.

Remember the debate over the state and local tax deduction, or SALT, which dominated much of the discussion in 2017 over tax reform. The legislation capped the SALT deduction at $10,000. Previously, taxpayers were entitled to deduct all their state and local taxes, though some of this benefit was removed by the Alternative Minimum Tax (AMT) which was largely repealed by the new law. Democrats castigated the tax reform legislation as a sop to the wealthy and harmful to the middle class and they cited the capping of SALT as the prime example of this perceived unfairness. 

Sen. Chuck Schumer at the time said that the tax proposal “would raise taxes on millions of middle class families, particularly in the suburbs, while providing a huge giveaway to corporations and the wealthy”.

Governor Andrew Cuomo called it an “all out, direct attack on New York’s future”. 

Well, a new report from the non-partisan congressional Joint Committee on Tax provides a dose of reality for all of us.  It turns out that the rhetoric about the SALT cap was largely overblown if not outright false.

Returning to the old law on SALT would result in a tax cut of around $77 billion in 2019, with fully $40 billion going to those earning over $1 million. On average, these taxpayers would save approximately $67,000.

According to Politico another $14.4 billion would go to taxpayers earning between $500,000 and $1 million, or about $12,000 per taxpayer.  Those earning between $200,000 and $500,000 – typical upper middle class taxpayers – would receive a cumulative $18 billion in savings, averaging almost $3000.

So of the $77 billion in savings to taxpayers if congress restored the old SALT deduction, fully $72 billion or approximately 95% of the benefit would be distributed to taxpayers making over $200,000.

Now, there were good reasons to oppose the capping of the SALT deduction.  As a member of Congress, I voted against the tax bill largely because I thought it unfair to abruptly cap– on two weeks’ notice – the SALT deduction as millions of taxpayers had made economic decisions on home purchases in part based on the full deductibility of state and local taxes.  I also felt that the impact of the SALT cap would increase the exodus of wealthier taxpayers out of New York State; and indeed, that exodus is happening.

But I never believed the rhetoric about the SALT cap being a “dagger in the heart” of middle-class New Yorkers, to borrow a phrase from Sen. Schumer.

In truth, most New Yorkers who pay taxes received a tax cut in 2018 from tax reform.  We can argue about the decisions made on corporate taxes or individual rate reductions or the appropriateness of the SALT cap.  But if we cut through the rhetoric, we can see the reality:  the SALT cap was most adversely felt by wealthy taxpayers residing in high tax states.

Indeed, the cap largely affects wealthier taxpayers in high-tax states such as New York and California.  A change in the law would require Congress to make up the lost revenue somewhere else. 

Even if a Democrat is elected president in 2020, the SALT cap is unlikely to go away.  All the Democratic candidates for President proposing a multitude of new spending plans. Funding for such proposals, they say, will come from new taxes on the wealthy. Yet, how will they, at the same time, explain restoring a tax deduction – which largely benefits those same wealthy taxpayers?

The rhetoric of the Democratic candidates largely ignores the reality of these facts.  The SALT cap is likely here to stay.  To reduce the adverse impact on New Yorkers, our leaders would better serve the state by reducing spending and the taxes that drive so many of our citizens away.

Former Representative John Faso of Kinderhook represented New York's 19th House district in the 115th Congress.

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