Home About Archives RSS Feed

The Retired Investor: SALT Away?

By Bill SchmickiBerkshires columnist
High-income tax states like Massachusetts, New Jersey, California, and New York would appear to be winners if President Biden's "Build Back Better" plan is finally passed by Congress. The Trump-era limit on state and local tax deductions could provide a $200 billion (or more) wind fall for wealthy Americans.
 
As it stands now, congressional Democrats, especially those who represent high tax states, are crafting a change in the SALT deduction cap. Presently American households can only deduct $10,000 of state and local taxes from their federal income taxes. That cap deduction is poised to end by 2026.
 
In a prior column, I explained that in exchange for their votes on Biden's $1.7 trillion plan, high tax state legislatures insisted on lifting the amount of the SALT cap. The House Rules Committee is now working on a change that would raise the $10,000 cap to $72,500 for five years (that would be retroactive to 2021).
 
The largest beneficiaries, according to the Tax Policy Center, would be households earning at least seven figures. They would receive the lion's share of benefits. As for middle-income U.S. households, the average cut in taxes would only amount to roughly $20 per year, while the higher income earners would be saving $23,000 per year. 
 
A full 25 percent of the tax cuts would flow to the top 0.1 percent of taxpayers. For them, the average savings in taxes would be $145,000. Another 57 percent of the benefits would go to the top 1 percent, who would save roughly $33,100 annually.
 
The Committee for a Responsible Federal Budget, a non-partisan, non-profit economic education organization, believes the tax benefit would cost $300 billion over the next four years with $240 billion of that cost accruing to those who make more than $200,000 a year. That would put the price tag for the SALT cap expansion on par with childcare subsidies, and the clean energy tax credits, making it the third costliest element of the overall Biden plan.
 
The legislation puts Democrats between a rock and a hard place. Clearly, most of the benefits would be going to the bluest-of-the-blue coastal states. The fact that it also benefits the wealthiest Americans flies in the face of the progressive side of the party, who have stomped and won their seats railing against income and wealth inequality.
 
In order to pass the Build Back legislation, Democrats need all hands-on deck. But the group of legislators most impacted by the present SALT tax has made it clear that without a SALT deal there would be no deal on the overall Biden plan. 
 
Over in the U.S Senate, key players are backing a different approach. They want to exempt taxpayers from the SALT cap, who make under a certain income level. That level is still being debated.  Achieving a resolution between the House and the Senate will be necessary before Democrats can hope to send a new version of the budget reconciliation package to the White House.   
 
In the middle of the debate sits the president. The framework of President Biden's plan, released last week, did not include a SALT repeal, or change in the present tax cap. In the past, however, the president has indicated he might be open to eliminating the deduction cap altogether. 
 
My own guess is that the Senate approach, which favors an income-based exemption, would be more palatable to a voter base that would not be interested in giving the wealthy another huge tax break.    
 
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

1 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Gov. Baker Gives Final State of the Commonwealth Address
Mayor Rejects Mohawk Theater Bid, Makes Plans for New RFP
Lever's Berkshire Interns Program Workshops
'RUNWAY' Painting Exhibition to Open at BCC
Pittsfield Panel OKs Free Cash for Airport Easement Acquisition Project
'Cloudy With a Chance of Murder' Review
Two Named to SVHC Foundation Northshire Regional Advisory Board
Cheshire Annual Census Mailed
Dalton Select Board Votes in Favor of Town Salary Increases
Does your business have an exit strategy?
 
 


Categories:
@theMarket (397)
Independent Investor (451)
Retired Investor (76)
Archives:
January 2022 (6)
January 2021 (2)
December 2021 (9)
November 2021 (7)
October 2021 (8)
September 2021 (9)
August 2021 (6)
July 2021 (8)
June 2021 (6)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
Tags:
Greece Taxes Election Jobs Wall Street Europe Crisis Stocks Rally Metals Euro Debt Ceiling Markets Oil Debt Energy Federal Reserve Japan Bailout Stock Market Banks Recession Interest Rates Congress Retirement Fiscal Cliff Commodities Economy Deficit Housing Europe Currency Selloff Pullback Stimulus
Popular Entries:
The Retired Investor: The Hawks Return
The Retired Investor: Has Labor Found Its Mojo?
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
The Retired Investor: Time to Hire an Investment Adviser?
The Retired Investor: Climate Change Is Costing Billions
@theMarket: Let the Good Times Roll
The Retired Investor: My Dog's Medical Bills Are Higher Than Mine
@theMarket: One Down, One to Go
@theMarket: Quarter Ends With a Bang
Recent Entries:
@theMarket: Corporate Guidance Sends Stocks Lower
The Retired Investor: A New Female Fed
@theMarket: Beware the Hikes of March
The Retired Investor: No-Shows Threaten Economy
@theMarket: Fed Meeting Notes Throw Markets a Curve
The Retired Investor: My Dog's Medical Bills Are Higher Than Mine
@theMarket: Markets Up on Thin Holiday Trading
The Retired Investor: Climate Change Is Costing Billions
@theMarket: Markets Are Heading for Trouble
The Retired Investor: Time to Hire an Investment Adviser?