April 27, 2018
Many progressives, including this one, have worked to come up with ways around the Republican tax laws limits on the deduction for state and local taxes (SALT). The reason is that we worry that the increased cost of these taxes will reduce the ability of states like New York and California to maintain and expand relatively generous social safety nets and support for education, health care, and child care.
When these taxes were fully deductible, the federal government effectively picked up 40 cents of each dollar of taxes on these states higher income residents. With the cap, these taxes will be borne 100 percent by the states’ residents. This is likely to make them more resistant to taxes. (This is the hypothesis that rich people are more resistant to higher taxes than to lower taxes.) It may also cause some to leave the state or find ways to avoid/evade their taxes.
For some reason, the Post was unable to find anyone to make these points until most of the way through its piece on efforts to work around the tax. It also misrepresented these efforts by implying that only very high-income people would benefit from them.
The first workaround to be passed into law was an optional 5.0 percent employer-side payroll tax in New York, which could apply to wages above $40,000. This would be a substitute for the state income tax.
A person who earns $100,000 a year (apparently now a high-income person in Washington Post land) would pay $3,000 in state employer-side taxes under this plan. That would be expected to come out of their wages, meaning that their taxable income for federal tax purposes would now be $97,000 instead of $100,000. Since this person (assuming a single individual) is in the 22 percent tax bracket, this switch would save them $660 dollars on their federal income taxes. This is the case whether or not they itemize.
Since their pay is $3,000 less, they would also save their Social Security and Medicare taxes as well. This is a 7.65 percent on the employee’s side, which gets them another $230 in savings, bringing their total savings to $890 a year.
It is obvious that the Post doesn’t like this sort of workaround but usually, pieces like this are reserved for the opinion pages and also try to be more accurate.
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