NY-22 Minute: NY House Republicans Struggle with SALT By Luke Perry
The State and Local Tax Deduction (SALT) is the most widely used income tax deduction in New York state. SALT enables individuals to deduct state and local taxes from their federal income taxes. President Trump believes it is “unfair” for the federal government to subsidize states in this way. This perspective has been consistently defended by Treasury Secretary Steve Mnuchin (examples here, here, and here).
This June several GOP House Representatives from New York wrote Secretary Mnuchin opposing the repeal of SALT, including Dan Donovan, Peter King, Elise Stefanik, Claudia Tenney, John Katko, John Faso, and Lee Zeldin. “The state has 3.2 million residents who claim the deduction,” the letter explained, “and New York’s itemizers make up primarily lower- and middle-income households.”
The letter also observed that “New York proudly pays more than its fair share to the federal government. The state has been a net payer to the federal government for decades.” In 2016, for instance, the New York comptroller found that 13 states paid more in federal taxes than it received in federal spending, including New York.
In September, Claudia Tenney stated that "until New York completely overhauls its tax code, removing this provision will strip primarily middle- and low-income New Yorkers of their only real tax relief." Lawmakers have unsuccessfully sought to abolish SALT before, most notably in 1986. The difference today is the president's strong advocacy coupled with his party's control of Congress.
In November, Representative Tenney objected to a proposed $10,000 cap on local tax deductions in the GOP tax plan, while claiming her “strong efforts on behalf of New York taxpayers” were “successful” in retaining this provision in the Tax Cuts and Jobs bill passed by the House Ways and Means Committee.
Tenney considered the bill to be “the start of the tax reform conversation” and stated “the SALT deduction matters” because “it amounts to real relief for hardworking families.” Tenney stated she would “continue to stand with many of my Republican colleagues from New York in advocating for the including of meaningful SALT provisions in a final tax reform package.”
Weeks later, the House version of the Tax Cuts and Jobs Act passed, with the property tax cap and elimination of state and local income tax deductions.
Most of the 13 House Republicans who opposed the bill were from districts targeted by the Democrats in the 2018 midterm. Most New York House Republicans voted against the bill, including John Faso (NY-19), who explained:
"We must provide middle class tax relief and lower the burdens on job-creating small businesses. I could not, however, vote in support of a budget resolution that singled out for elimination the ability of New York families to deduct state and local taxes."
Faso believes that most middle income taxpayers in his district would benefit from the tax cut bill; "however, the statewide impact of the proposal will dramatically and negatively impact state revenues as wealthier taxpayers and their businesses flee New York State to lower taxed jurisdictions. These revenue reductions will ultimately hurt our district as the state’s tax base is further eroded."
Elise Stefanik (NY-21) also voted against the bill because of SALT. Stefanik supports the Gottheimer-Lance Tax Cut Plan that keeps SALT fully in place. Stefanik stated:
“I remain concerned about the elimination of the State and Local Tax Deduction which penalizes taxpayers in high-taxed states like New York. I will be voting no today to stand up for New York taxpayers in my district. This bill highlights the failure of New York state to rein in spending and to reduce the tax burden for all New Yorkers.”
Claudia Tenney, Chris Collins, Tom Reed, and John Katko voted in favor of the bill. In explaining her vote, Tenney stated that “the eight counties I represent have among the highest property tax rates as a percentage of home value in the nation” and “I will continue to make state and local tax deductibility a top priority as this bill heads to conference between the House and Senate.” The “bill is not perfect in its current form” and there are “changes I will continue to advocate for, especially on the SALT front.”
The final version of the Tax Cuts and Jobs Act, which combined the House and Senate versions, passed both chambers. House representatives from New York voted identically to the House version. The cap on SALT deductions remained in the bill. Both individuals and married couples can now only deduct $10,000 from their state and local taxes. SALT deductions remain fully in place for corporations, while being cut for individuals.
The tax cut bill has been poorly received nationally as most Americans disapprove of it and only one-third approve. There is widespread concern that the bill will hurt New York state’s housing market and make it more difficult for cities to fund public services.
Why is SALT part of tax cut legislation? Revenue and geopolitics. Repealing SALT would generate approximately $1.3 trillion over the next ten years. This is important considering the budget resolution passed by Republicans allows for a $1.5 trillion deficit. The non-partisan Joint Committee on Taxation has concluded the tax cut will cost $1 trillion.
Meanwhile, the states with the largest average amount of SALT claimed, including New York at $21,038, are predominately Democratic. This poses a particular challenge for New York Republicans. Representative Lee Zeldin (NY-1) put it this way: "I view the elimination of the deduction as a geographic redistribution of wealth, picking winners and losers. I don't want my home state to be a loser, and that really shouldn't come as any surprise."
Why would any New York representative vote to cut SALT? Representative Tenney's support appears to be about compromise within the GOP. Tenney has opposed SALT reductions in principle, but voted for them. She contends the bill is a net gain, convinced most businesses and individuals are more benefited than harmed by the legislation.
Politically, Tenney could not persuade President Trump or Vice President Pence to eliminate the SALT cuts and appears more wary of rebuking Trump on his first major piece of legislation than upsetting constituents regarding SALT. This is a risky calculation, but consistent with her reelection strategy premised on rallying her Trump-supporting base.
Updated 2:44pm, December 20, 2017.
Luke Perry (@PolSciLukePerry) is Chair and Professor of Government at Utica College.
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