Commentary: SALT tax deduction protects local government and residents

Maluchnik: Losing the SALT deduction would hurt taxpayers and services counties provide

The following commentary, which NACo helped to draft, has appeared in several Minnesota newspapers. 

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The total elimination of the state and local tax (SALT) deduction in the current tax reform plan will drive up taxes for homeowners, drive down their property values and upend a safeguard that has protected taxpayers against double taxation and state and local governments from federal encroachment for more than 100 years.

Eliminating SALT in any tax reform plan poses a serious threat to support for essential public services such as health care, infrastructure, education and public safety.

The plan creates an unprecedented double standard by eliminating the SALT deduction for individuals and families while preserving the same deduction for corporations.

SALT was first recognized by President Abraham Lincoln during the Civil War.

It was also established in 1913 when the federal income tax was adopted under the U.S. Constitution to avoid the federal intrusion and dominance over state and local tax revenue. This was pushed by conservatives of the day to protect state and local control.

The U.S. House and Senate bills aim to use state and local revenues as a new federal piggy bank — both by eliminating SALT and by putting new restrictions on refinancing of tax-exempt bonds and Private Activity Bonds (airports, ports, water and sewer, nonprofit hospitals and affordable housing).

SALT was on the original federal tax form — when it truly was a postcard and only three pages — as one of the six original deductions.

Both House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell have now clarified that both bills do raise taxes on some of the middle class, mostly middle class homeowners in the $100,000 to $200,000 range for household incomes, not just individuals.

The proposals only make the child and family tax credits as temporary provisions through 2022.

Meanwhile almost all of the corporate tax provisions are permanent, so we’re being asked to “trust Congress.”

Corporations would be able to deduct their SALT expenses, plus taxes paid to foreign governments, but individuals and families would not be entitled to deduct these expenses.

(The House is now saying that small businesses and “pass through” businesses might not be able to deduct SALT — just the big corporations.)

It appears that these tax bills are all about corporate tax reform — corporations pay 10 percent of federal tax reform. Individuals and families pay 83 percent, yet the personal income side of the tax reform proposals was put together without any real thought or understanding of the impact. It was all about finding revenue sources to offset the corporate tax rate cut.

Minnesota residents, particularly homeowners, stand to pay more under the plan passed by the Ways and Means Committee.

IRS data shows that an average single homeowner making between $50,000 and $200,000 in every single ZIP code in Minnesota’s Third Congressional District will pay more taxes, even given the proposed reduction in rates. The average tax increase on these homeowners is $545, with a max increase of $1,257.

In almost half of the ZIP codes, in our Congressional District, a family of four would see a tax increase, with an average increase of $946 and a max increase of $2,321. These calculations are based on the plan that includes the $10,000 deduction for property taxes.

If the bill fully repeals SALT, as the Senate version proposes, the math gets even worse for these families.

These are certainly concerns for individual taxpayers, but also for county governments. As taxpayers see their federal taxes rise, they turn to local governments for tax relief.

That means not approving new infrastructure projects, decreasing county revenues and decreasing county services.

The SALT deduction was put in the original 1913 tax code to protect state and local governments from interference by the federal government.

Changing it now would hurt taxpayers and the local services we provide.