Grassley on Repealing the SALT Tax
Grassley on Repealing the
Prepared Floor Remarks by
U.S. Senator Chuck Grassley of Iowa
Chairman, Senate Finance
Wednesday, October 23,
week Democrats are using the Congressional Review Act to force a vote on
a resolution that would effectively repeal an IRS regulation aimed at
preventing millionaires and billionaires from exploiting a tax loophole.
loophole would allow top income earners to save billions of dollars in federal
taxes annually. New York City hedge fund and private equity managers would most
assuredly be some of the biggest beneficiaries under this loophole. At the same
time, taxpayers with incomes under $50,000 would see virtually no
this case, one might think my Democratic colleagues would be cheering on the
Treasury Department and the IRS for taking decisive action to shut down this
loophole for the wealthy.
this isn’t the case. It’s Democrats, and only Democrats, including the
Democratic Minority Leader, who are arguing in favor of allowing wealthy
taxpayers to exploit this loophole.
predominantly Democratic states have been actively promoting and bemoaning the
loss of this loophole.
loophole I’m talking about is a concerted effort by predominantly Democratic
states to help their wealthiest residents get around the $10,000 cap on the
deduction for state and local taxes, which has come to be known as “SALT.” And
these efforts to get around the cap have been called “Blue State SALT
workarounds are essentially state-sanctioned tax shelters where wealthy
residents make payments to a state or local government-controlled fund in
exchange for tax credits they can use to wipe out most or all of their state
states then want the federal government to ignore this sleight of hand and
recognize these payments as fully deductible “charitable contributions” when
they are nothing more than state tax payments.
that’s too cute by half. It’s cheating, and these states are encouraging it,
forcing the rest of the country to subsidize these tax shelters for the
Treasury Department and the IRS have correctly determined that these
“workarounds” are contrary to the federal tax law and have issued sensible
regulations to clarify their tax treatment. In doing so, they applied
long-standing tax principles that deny a charity deduction to the extent the
taxpayer receives something of value in return for their donation.
simply common sense. Charity is by definition something done out of the
goodness of your heart without expecting or getting something in return.
certainly not the case for these “workarounds.” There’s no charity involved. In
fact, once taking into account both the state tax credit and the charitable
deduction at the federal level, a taxpayer could actually receive a tax benefit
that exceeds the dollar value of their so-called “donation.”
not charity. That’s a tax scam.
have attempted to justify this tax scam by pointing to state tax credit
programs that existed prior to the existence of the SALT cap. But, unlike the
recently enacted programs these older programs were not specifically designed
to circumvent federal tax law when they were enacted.
pre-exiting state tax credit programs were targeted at giving taxpayers the
option of funding certain non-traditional governmental activities, such as
providing underprivileged children scholarships or to set aside land for
Democratic colleagues have painstakingly tried to defend these scams by
claiming they are efforts to alleviate state-tax burdens on the middle class.
this argument doesn’t even pass the laugh test. It’s undeniable that these “workarounds”
will overwhelming benefit the super wealthy, while the middle class will
receive little to no benefit.
illustrate this point I have here a chart based on a non-partisan Joint
Committee on Taxation distributional analysis. It shows who would benefit from
repealing the cap on deductions for state and local taxes.
eliminating these Treasury regulations would not repeal the SALT cap entirely,
it would effectively make the cap toothless as more and more states would
create “workarounds.” And let’s not forget, the repeal of the cap is their
you can see, the majority of the benefit from repealing the SALT cap, 52
percent, would flow to taxpayers with incomes exceeding $1 million. Let’s think
about this for a minute.
than half of 1 percent of all tax returns report income exceeding $1 million.
Yet, according to JCT, these taxpayers would receive 52 percent of the tax
42 percent of the tax benefit would go to taxpayers with incomes between
$200,000 and $1 million. When combined with those earning over $1 million,
fully 94 percent of the tax benefit would go taxpayers with incomes over
put this into perspective, only about 7 percent of tax returns report income
exceeding this level.
compare this to taxpayers with incomes under $200,000, which is about 93
percent of all taxpayers. According to JCT, this group would receive a measly 6
percent of any benefit from repealing the cap on state-tax deductions.
a handful of taxpayers with incomes under $200,000, about 3 percent, would
actually see any benefit. 97 percent of these taxpayers wouldn’t see even one
penny of benefit from taking away the SALT cap.
there you have it. The same Democrats who have criticized the 2017 tax law as
supposedly benefiting only the wealthy are now actively pushing an agenda that
would overwhelming benefit the wealthy.
goes to show you how off-base Democrat criticisms of tax reform really are. Far
from being a giveaway to the “wealthy,” tax reform was a concerted effort to
provide tax relief for everybody.
accomplished this primarily by lowering tax rates across the board. But we also
did it by repealing or limiting certain regressive tax benefits, such as the
deduction for state and local taxes. We then used that revenue to increase
benefits that better target low to middle-income taxpayers.
example, we doubled the child tax credit from $1,000 to $2,000 and increased
its refundability. We also nearly doubled the standard deduction to the benefit
of many lower- and middle-income taxpayers. We likely couldn’t have made those
changes if we hadn’t limited the deduction for state taxes that mostly
benefitted the wealthy.
who wrongly associate this SALT cap with a tax increase on middle-income folks
simply aren’t looking at the facts or tax reform as a whole.
years ago Republicans created a tax cut for an overwhelming majority of
Americans. This is true even for taxpayers affected by the deduction for state
tax reform, many upper middle-income taxpayers, particularly those in high-tax
blue states, had to pay the alternative minimum tax (AMT). Well, for anyone who
used to pay the AMT, after you struggled through the incredible complexity of
the rules, you realized an unfortunate fact. The AMT clawed back the deduction
for your state tax payments. Therefore, many of these taxpayers saw little or
no benefit from this deduction before tax reform. Democrats don’t like to admit
this inconvenient truth, but it’s true.
yes, these same taxpayers are likely now affected by the SALT cap. But, because
Republicans largely did away with the AMT and lowered everyone’s tax rates,
they still received a tax cut.
let’s not forget these taxpayers no longer have to deal with the mind-numbing
complexity of the AMT. Do Democrats really want middle-income families to have
to go back to the nonsense of figuring out the alternative minimum tax every
heard Democrats try to justify their efforts to undermine the SALT cap by
claiming it was part of some nefarious plot against blue states. That’s simply
more taxpayers in blue states are affected by the cap given the high state
taxes they face. But, the fact is on average every income group in every state
saw a tax cut under tax reform. This isn’t just coming from Chuck Grassley, but
an analysis by the liberal Institute on Taxation and Economic Policy. Moreover,
recent filing season data released by H&R block shows on average residents
of even high-tax states received a tax cut.
have also heard fears that the cap will negatively affect blue state revenues
as higher income taxpayers flee to lower tax jurisdictions. But, concerns about
such an exodus aren’t new and didn’t start because of the cap – they started
because of sky high taxes in these states.
November of 2017, prior to enactment of tax reform, the Wall Street Journal
wrote about “The Great Progressive Tax Escape.” This article focuses on IRS tax
return data between 2012 and 2015 that showed billions of dollars in taxable
income leaving high-tax states for low-tax states due to taxpayer migration.
Last time I checked, there was no SALT cap between 2012 and 2015.
there is some anecdotal evidence that taxpayer migration might be starting to
increase due to the cap, it’s not entirely clear that it has. Mr. President, I
ask for unanimous consent to insert into the Record a Bloomberg article from
May of this year titled, Blue States Warned of a Salt Apocalypse. It Hasn’t
Happened. As this article highlights, revenues for blue states this tax
season were up, not down. The rating’s agency Moody’s also released a report in
April saying there were no “discernable signs” individuals were fleeing high
tax states as a result of the SALT cap.
even if taxpayer migration were to occur as a result of the cap, the answer to
the problem is for states to look at their own tax-and-spend policies.
truth is, these state politicians aren’t concerned about their own taxpayers.
What they’re really worried about is their continued ability to gouge those
taxpayers with ever-increasing state and local taxes, which used to be
subsidized by taxpayers from other states through the federal tax code.
closing, I want to turn back to this chart I discussed earlier. For Democrats
still on the fence as to whether to vote to repeal the IRS regulations on the
SALT workarounds, study this chart carefully.
you with a straight face argue that a vote to protect these workarounds is not
a vote to provide a massive tax cut to the wealthy?
Democrats who intend to vote for this tax scam anyway, I don’t want to hear any
more long-winded speeches about how tax reform benefitted the wealthy.
fact is, after tax reform the wealthy now shoulder a larger share of federal
tax burden than they did under prior law. This was made possible by reforms to
regressive tax expenditures such as capping the SALT deduction.
more, these reforms allowed us to target more tax relief to lower- and
workarounds to the SALT cap are nothing more than state-sanctioned tax
shelters. By voting to undermine that cap, Democrats are voting to enrich
the wealthy taxpayers who they persistently vilify as not paying enough.
Moreover, they put the tax relief provided to the middle-class in jeopardy.