(CALmatters) – Late last week, Gov. Gavin Newsom joined five other blue state governors to ask President Biden to bring back one of coastal liberal America’s favorite tax breaks.
For as long as the federal income tax has been around, taxpayers have enjoyed the ability to write off their state and local tax payments from their federal tax bill. That deduction has disproportionately benefited Democratic states and Democratically-controlled cities, which tend to have higher taxes.
But in 2018, Republicans in Congress passed the Tax Cuts and Jobs Act, the signature legislative accomplishment of the Trump era, capping the amount that can be written off at $10,000 per year.
Now that Biden is mulling over a massive new infrastructure bill, Newsom and the governors of New York, New Jersey, Connecticut, Oregon and Hawaii want him to pop off that cap.
- The Dem governors: “Like so many of President Trump’s efforts, capping SALT deductions was based on politics, not logic or good government. This assault disproportionately targeted Democratic-run states, increasing taxes on hardworking families.”
Newsom joins a fellow Bay Area Democrat, House Speaker Nancy Pelosi, who said she was hopeful that a repeal of the cap would be included in the infrastructure proposal.
But that request puts Democrats in an awkward ideological position:
- On the one hand: Lifting the cap sticks it to Trump and disproportionately benefits taxpayers in blue states.
- On the other: It would also disproportionately benefit the super rich. That’s because most people don’t pay more than the current cap of 10 grand in state and local taxes.
A 2020 analysis from the Brookings Institution found that 57% of the savings generated by repealing the cap would go to the top 1% of earners nationwide. But as a CalMatters analysis in 2019 found, some upper-middle-class Californians — particularly new homeowners — would also benefit.
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