Left-leaning group: SALT cap repeal would worsen racial income disparities

Repealing the cap on the state and local tax (SALT) deduction would exacerbate racial income and wealth disparities, according to an analysis released Tuesday from the left-leaning Institute on Taxation and Economic Policy (ITEP).

The think tank’s report comes as a growing number of Democratic lawmakers are pushing for the SALT cap to be repealed in forthcoming infrastructure legislation.

“Repealing the SALT cap would worsen the racial income and wealth divides by primarily benefiting wealthy white households,” ITEP wrote in its report. “It would also likely crowd out other, much more progressive policies and programs from the upcoming infrastructure package while doing comparatively little to encourage progressive revenue raising at the state and local levels.”

Republicans’ 2017 tax law capped the SALT deduction at $10,000 in an effort to help offset the cost of tax cuts in the measure. A number of lawmakers on both sides of the aisle from high-tax states such as New York, New Jersey, California and Illinois oppose the cap, arguing that it hurts their residents and their states.

Some House Democrats from high-tax states are threatening to oppose an infrastructure bill if it doesn’t remove the cap. But tax policy experts across the ideological spectrum have criticized the push to repeal the cap, saying that doing so would largely benefit wealthy households.

ITEP previously estimated that 85 percent of the tax cuts linked to repeal of the cap would go to the richest 5 percent of taxpayers. “Because years of policy advantage and privilege have led to a significant overconcentration of white families among the nation’s highest-income and highest-wealth families, this means that an outsized share of the total tax cuts would flow to white households,” the group said in its new report.

ITEP estimated that more than 72 percent of the benefits of a repeal of the SALT deduction limit would go to white families, though white families make up less than two-thirds of all households. Sixty-seven percent of the benefits from SALT deduction cap repeal would go to white families making over $200,000, a group that makes up about 7 percent of families nationally.

Most families, regardless of race, won’t receive any benefit from repeal of the SALT deduction limit, but this is particularly true for Black and Hispanic families, ITEP said.

Black families would be 42 percent less likely than white families to receive a tax cut if the $10,000 cap were repealed, while Hispanic families would be 33 percent less likely than white families to get a tax cut. These gaps are even bigger in New York, New Jersey, California and Illinois, ITEP said.

ITEP recommended replacing the SALT deduction cap with a broader limit on itemized deductions that also applies to mortgage interest and charitable contributions.

“Depending on the details of its design, that type of reform could preserve—or even increase—current revenues and be more progressive than the SALT cap,” ITEP said.

During a Senate Finance Committee hearing on Tuesday, Republican lawmakers also argued that repealing the SALT deduction cap would increase inequality.

“Going the opposite direction of combating inequality in the tax code are efforts like trying to roll back the cap,” said Finance Committee ranking member Mike Crapo (R-Idaho).