| 摘要 | In 2017, the Tax Cuts and Jobs Act provided a sweeping overhaul of the tax system. While it lowered corporate tax rates significantly and personal income tax rates, marginally, it also effectively raised tax rates on certain itemizing taxpayers by putting in place a cap on the amount of state and local taxes that can be deducted.
While such a policy makes good economic sense since itemizers tend to be relatively higher income households, politicians in Congress have been pitching this tax hike as a tax increase on small homeowners. Recently, Rep. Bill Pascrell (D-NJ) and Sen. Bob Menendez (D-NJ) have proposed repealing the cap but increasing the top individual rate back to 39.6%. What effect would this have on taxpayers?
We first model the impact of solely repealing the SALT cap. Using Tax-Calculator release 2.2.0, we estimate that this repeal will decrease tax revenue by $68.9 in 2019 and more than $568 billion across the next decade (note that the effects derive from the 2019 to 2025 budget window during which the SALT cap is in effect). This is in line with recent studies estimating the ten-year revenue loss. For instance, the Tax Policy Center estimates that the SALT cap repeal will increase the deficit by $620 billion, and Tax Foundation similarly puts this number at $532 billion.
But exactly who are these individuals helped by repealing the SALT cap? Recent studies find that 96% of the tax cut from repealing the SALT cap would go to the top 20% of households. Moreover, it is individuals in wealthier states with higher property taxes such as New Jersey, New York, and California that are likely to be most impacted.
Our estimates indicate that the after-tax income of the top 10% increases by an average of 1.2% (a $3,716 tax saving), and the average after-tax income of the top 5% increases by 1.0% (a $2,655 tax saving). Further still, the average income of top 1% increases by 1.9% (a $23,495 tax saving).
As is clear from the chart above, these effects are concentrated among top-earners, with little to no effect on middle- to low-income households. We calculate that those between the 60th to 70th percentiles receive only an $11 tax decrease, similar to Tax Policy Center’s findings that middle-income earners see a mere $10 tax cut from repealing the SALT Cap. Those in the bottom half of the income distribution see, on average, a tax cut of at most a $1 or so.
Further, the proposal by Rep. Bill Pascrell (D-NJ) and Sen. Bob Menendez (D-NJ) to repeal the cap and increase the top individual rate back to 39.6% would still increase the deficit by $57.4 billion in 2019, with the top 10% receiving a 1% increase in after-tax income and the bottom 90% with little to no change in income.
Clearly, repealing the SALT cap has little to do with helping low to middle-income households. Another argument often made is that allowing state and local tax deductions encourages homeownership by these very households. This argument is also flawed. Realistically, the poorest households only own 39% of homes at present. These individuals with incomes below $100,000 are far less likely to itemize, particularly after the TCJA’s increase of the standard deduction, which has reduced the incentive to itemize even further. Therefore, the likelihood that the SALT cap has any impact on their decision to own homes is slim.
What low-income individuals need is more assistance, through an expanded EITC or refundable child tax credits, or other means. We move further away from the goal of helping the most vulnerable populations when we increase the deficit through inefficient “reforms” of the tax code, such as SALT cap repeal. |
