Salt Salt Salt
One of the key provisions of the Trump Tax Plan is the repeal of the State and Local Tax deduction, or SALT. In simple language, the SALT deduction allows you to deduct what you pay in state and local taxes from your federal taxes so Uncle Sam taxes you on what you make after you pay your state and local governments.
The Trump Tax Cuts are estimated to cost about $2,500,000,000,000 over the next ten years. Without repealing the SALT deduction that price-tag would be about 50% higher. Republicans are already struggling to sell deficit-financed tax-cuts to a public that spent eight years listening to them complain about Obama’s great-recession-era deficit spending. They need every bit of revenue they can scrape together to keep the deficit hawks from abandoning the bill.
Not surprisingly, “blue” states. More progressive, urbanized states are likely to already have higher rates of taxation to fund more expanded services so, much like the Medicaid block grants in the Cassidy-Graham healthcare bill, this has the effect of punishing blue states in order to reward red ones. That may not play well with Republicans in those blue states. Many of the people claiming the deduction live in Republican congressional districts.
Why does it matter?
According to the New York Times, tax cuts are the glue holding a fractured Republican party together and there is a segment of the party that may not go along with eliminating the SALT deduction for ideological reasons. States face less political resistance to taxation when those taxes are federally deductible. The SALT deduction effectively pulls money away from the federal government and into state coffers, empowering smaller, more local governments.
Ending that deduction, therefore, weakens those governments, and to a lot of Republicans, that feels like a betrayal of conservative values.
If the GOP can’t find consensus on this issue, Trump’s entire tax plan may fail.
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