President Trump Looks to Eliminate the SALT Deduction

Posted: Oct 17, 2017 1:45 PM

The White House is working hard with Congress to pass tax reform. If tax reform doesn't pass, it will not only be a blow to the White House administration but a blow to the entire Republican Party. One part of President Trump's tax plan is garnering support and if it were to be implemented with tax reform as a whole, would allow for over a trillion dollars in tax cuts.

To make this happen, President Trump is proposing to eliminate the state and local tax (SALT) deduction.

The American Legislative Exchange Council (ALEC) approves of this action and in a letter to Congress that is signed by more than one hundred state legislators says:

Eliminating the state and local tax (SALT) deduction would provide upwards of $1.5 trillion over the next decade to implement broad-based tax cuts nationally. This overhaul would spur the growth in economic output needed to jolt business investment, personal income growth, and job growth.

Through a press release and an on-the-record call, key members of ALEC voiced their support for doing away with the deduction.

More than three decades ago, another president attempted to eliminate the SALT deduction through tax reform. President Ronald Reagan proposed its removal but was ultimately unsuccessful. According to ALEC's Chief Economist Jonathan Williams, President Reagan hinted at how difficult it is to eliminate the deduction by calling it one of the "most sacred of cows."

Indiana State Sen. Jim Buck, the 2017 ALEC National Chairman, is another supporter of eliminating the SALT deduction. He stated that to make America great again, the United States must first make the states great again as they are the "laboratory of democracy."

Sen. Buck explained the benefits that tax cuts would bring to the states if they eliminated the deduction and used his home state as an example.

The best evidence of the positive effects of tax cuts comes from states like Indiana. By eliminating the state and local tax deduction, the resulting lower federal income tax rates will give residents of all states tax relief. My message to members of Congress from high-tax states: 'Support the elimination of the state and local tax deduction. Your constituents will benefit from stronger state economic growth generated by lower federal taxes.'"

Stephen Moore, an ALEC scholar and the author of "Rich States, Poor States," helped form President Trump's tax reform plan. Moore stated that the SALT deduction is unfair to lower taxed states and that if one is for limited government and pro-private sector growth, they should support this idea.

However, opponents of the decision say eliminating the deduction is merely a revenue grab by the federal government. Joel Griffith, the ALEC Center for State Fiscal Reform Director, says that this claim could not be farther from the truth.

Eliminating the SALT deduction has been mischaracterized as a revenue grab. Quite the contrary, elimination of the deduction in exchange for lower federal income tax rates is a revenue-neutral shift in tax policy. All residents—including the 30% of tax filers who itemize deductions on their tax returns— will benefit from the economic growth generated by lower federal income tax rates.

If the SALT deduction were to be eliminated, people living in high tax states like California and Connecticut would be pressured to take a closer look at their state's tax policies and spending, which could result in tax reform at the state level. Tax reform is greatly needed in this country and if this plan were to come to fruition, the country could see great economic growth.

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