Taxing Tuesday: SALTy Trump
I am not pleased, but not surprised
As elements of “his” tax bill from 2017 are coming up for review in the next presidential term, it looks like candidate Trump is promising all sorts of redos:
The American Prospect: Trump’s Tax Cut-A-Rama Total So Far: $9.75 Trillion
Donald Trump’s recent bid for votes by giving away a host of tax benefits and exemptions would bring the total cost of his tax plan to between $8.5 trillion and $9.75 trillion over a decade, according to a Prospect review of estimates by tax study organizations.
Over the last few months, Trump has vowed to eliminate taxes on tips, cancel taxes on Social Security benefits, end taxes on overtime pay, reduce the corporate tax rate to 15 percent for domestic manufacturers and 20 percent for other corporations, and repeal the cap on the state and local tax deduction (SALT) that he himself signed into law in the 2017 Trump tax cuts. (He has also called for a deduction of “major newborn expenses” but since he gave no indication of what a major expense is, that is impossible to model.)
Trump would extend all of the other tax cuts in his 2017 law other than that SALT cap. The cost of that extension has already been put at $4.6 trillion over ten years, but if the SALT cap is not retained, that would cost another $1.2 trillion. Total estimates for a 2017 tax cut extension without the SALT cap, as listed by tax analysts, ranges between $5.1 trillion from the Committee for a Responsible Federal Budget, to $5.3 trillion from the Tax Foundation, to $5.8 trillion if you add the Congressional Budget Office estimate to the CRFB estimate of the cost of SALT cap repeal.
This would be a highly amusing scenario to me.
I could wargame various Congressional compositions… for House or Senate.
Hey, why not use that handy-dandy Polymarket thing substack is trying to make money off of?
[I don’t think I get any cut.]
House and Senate Probabilities: Polymarket Style
So I decided to go look at Polymarket.
First, the House, where supposedly, all tax and appropriations bills are supposed to originate.
Right now, it’s barely Republican-controlled.
Yes, I wrote about Rep. Sheila Jackson Lee’s death here. I have an upcoming related post there.
Bill Pascrell was 87 when he died. He reminds me of this post: All Men Must Die, But They Don't Have to Die in Office
Polymarket “Democratic House control after 2024 election”
Here is the historical screenshot I have:
How about the Senate?
Polymarket “Democratic Senate control after 2024 election”
I will leave it to others to comment on how accurate these probabilities are.
But let us assume that there is a split House/Senate control.
Prior SALT cap posts — both Repubs and Dems have issues
It doesn’t even matter if both House and Senate are the same party — there is a hilarious SALT cap split, no matter which party is in charge.
Let me grab a few of my SALT cap-related posts:
August 2022: Taxing Tuesday: A Retrospective of Stupid Tax Policy - Soda taxes, Amazon tax, SALT cap
There are a few Republican representatives and senators in areas that would have had high SALT deductions, but most of the places hard hit are all-Dem from the lowest level up to the governor. Republicans aren’t involved in the brou-ha-ha, other than setting up the situation to begin with. They simply point out the beneficiaries of the SALT deductions are very high income and/or high wealth — didn’t you people say you want to tax the rich? — and then just stand back.
August 2023: Taxing Tuesday: SALT cap battles - the New York Republicans make their play
I’m fine with what the NY Republicans are attempting — they’ve got to try something — but I really don’t see that the power dynamics are such that they’re going to get much of anywhere.
The high-tax Democrats weren’t able to get anything unstuck.
I don’t see them being able to get anything unstuck.
February 2023: Taxing Tuesday: Be My Valentine, SALT Cap
So, here’s the deal with being in control of the House of Representatives — you start those revenue bills.
When it was Pelosi and the Democrats in charge, well, they had a fat chance of overturning the SALT cap for very amusing, ideological reasons.
….
The main lesson is that this is going to be dependent on the 2024 elections - the Congressional AND Presidential elections.
With the 2017 TCJA I was a winner, in that I got a SALT cap and my taxes didn’t go up. (Well, my federal taxes went down very slightly.)
I can imagine a 2025 where I’m a multiple loser — SALT cap gone, but my taxes are up all over.
What’s the benefit of having no SALT cap if I have to pay more taxes after it’s all over? Huh?
Democrats have the funniest conflicts.
They represent the highest-income, highest-tax districts, in general, in the House of Representatives.
They’re also the ones with the TAX THE RICH discourse.
What is their excuse for anything other than SALT cap zero?
Republicans have been amping up the “screw the high-tax locales” discourse… but for those who actually want to have power, they know they want and need to win at least a few of those high-tax locations.
A SALT cap zero policy isn’t a political winner there.
By the way, I live in one of those high-tax districts, currently represented by Republican Mike Lawler. This is a highly-contested district, and Lawler has advocated for adjusting the SALT cap. He’s not the only Republican under pressure for similar reasons.
Jan 2024: Taxing Tuesday: Much Ado Over SALT
Replacing lost tax revenues
I could see a SALT cap unwind, but what taxes would be brought in to replace the foregone revenue?
(the taxes on tips is just a little sop)
And ugh, taxes on Social Security benefits… are you kidding me?
From the TAP piece:
Trump has boasted that you could not only pay for all tax cuts with the tariffs but still have enough left over to fund investments in things like child care. But the most aggressive tariff he’s ever proposed, with 20 percent across the board on all imports and up to 60 percent tariffs on Chinese goods, wouldn’t even cover the increase in debt from the extension of the 2017 tax cut, let alone all of the new handouts he’s making in a play for votes. And that’s if all the goods that are imported today are still imported with the increased tariffs, which is not how tariffs are supposed to work; the idea is to increase domestic production and reduce the trade deficit. The tariff would need to be close to 60 percent across the board to cover all the tax cuts being promised.
So tariffs on Chinese-made goods, to make the things people buy more expensive… boy, that would be popular.
I think people would discover rather rapidly who actually pays tariffs.
Tax Foundation Analysis pre-SALT talk
Yes, yes, yes, TAP is a progressive group. The Tax Foundation isn’t.
That said, the following analysis seems to have been done before Trump decided to say that SALT deductibility should be back in full.
10 Sept 2024: Donald Trump Tax Plan Ideas: Details & Analysis
You can go to the link to see what the Tax Foundation has to say for itself.
But the first problem is that this was published on 10 Sept 2024, before the publicity of Trump talking about getting rid of the SALT full deductibility.
The second issue is the number of assumptions involved (though all of these proposals involve assumptions - you can’t get away from that.)
The third problem I have is that I think the visualization is not independent parts, but items that build on each other in succession, and it’s not clear in its presentation.
DO A WATERFALL PRESENTATION — SHOW THE INDIVIDUAL IMPACTS!
(yes, I know waterfall graphs are difficult to interpret)
Likelihood of passage: Come on, man!
So, here’s the deal.
Who benefits from the removal of a SALT cap?
High-income folks!
But I thought that’s who we were supposed to be taxing!
Trump won’t be signing onto higher marginal tax rates, so that’s a non-starter if he’s the President (again).
Kamala Harris might be okay with both increasing marginal tax rates and removing the SALT cap… but it still has to get through Congress!
If it’s a Dem House and Repub Senate — maaaaybe that will happen. But probably not — because more people will be hurt due to higher marginal tax rates than benefit from full deductibility of SALT.
Not everyone will be aware of this, of course.
Many people bought the lie that they came up short from the 2017 tax bill from the SALT cap, because they saw that they hit the cap. Heck, maybe the software they used told them that the standard deduction was their best choice.
It is my dominant choice most of the time.
This is not a bad thing, by the way.
If they had done a head-to-head comparison, maybe they would have seen they were not losers from the 2017 bill. I knew how to make such a comparison and saw it was a wash for my situation. I know why others tried other comparisons, thinking that — hey, if I had these tax rates but with full SALT deductibility… I would be even better off!
But forgetting that deal was not on the table.
The marginal rates were determined given a reduction in SALT deductibility, and an increase in the standard deduction. Which broadly gave people tax cuts.
The issue is that some people want to pay less taxes in relation to others, and don’t care so much about broad cuts. They want others to pay more while they can minimize their payments.
Maybe they should think about paying their fair share.