With the ascent of President Joe Biden and Democratic majorities in both houses, including my constituent Charles Schumer becoming Senate Majority Leader, I feel so grateful that sanity has returned to Washington. Already they demonstrated this rationality with the American Rescue Plan, providing much-needed relief to millions. And with negotiations for the next stimulus bill well under way, the President and Congress need to do what my family does when I try to cook: add SALT.
Or, to be more precise, end the $10,000 cap on the State and Local Tax deduction, which allows people to deduct these taxes from their federal taxable income. What used to be a fairly noncontroversial deduction, SALT was weaponized in 2017, when Republicans in Congress passed the Tax Cut and Jobs Act that capped the amount of taxes deductible. This cap was a punishment to states with higher taxes, who tend to vote Democrat, affecting deductibility of not only income taxes but also property taxes, which outside the city primarily go to funding schools.
The punitive SALT cap now costs New Yorkers about $12.3 billion annually, and may end up costing us $15 billion by 2025.
This must stop. It is a matter of fundamental fairness.
The SALT deduction helps balance out the fact that the federal government already soaks our state, taking much more than it gives. As it stands, New York State ranks dead last in the amount of money we get back from the federal government versus what we give. In 2019, the net balance of payment was almost negative $23 billion. That comes out to every man, woman, and child in New York giving $1,172 more to the federal government than they get back. For comparison, Kentucky receives the equivalent of $14,000 per person from the federal government, no doubt thanks to “fiscal conservative” Senator Mitch McConnell. And the pandemic did not sway Washington to change its tune: even while New York City was the worldwide COVID epicenter, we received emergency aid of under $12,000 per case, compared to over $470,000 per case in West Virginia.
The SALT cap is also putting a knife through economic development in New York State, at a time when that is vital to our recovery. According to a study by the state, for every dollar New Yorkers have to pay thanks to the SALT cap, we lose $1.17 in economic activity in the state. Depending on the methodology, that adds up to a loss of $14.4 billion to $24.5 billion in economic activity each year. So even at the low end, we are losing the equivalent of the entire GDP of Jamaica. Part and parcel with the loss in economic activity is a loss in jobs, to the tune of 107,000 in seven years.
And no, this is not a column where I come out as a libertarian conservative. I am not saying that I will introduce a bill to abolish all income taxes in New York State. Because there is a critical difference between the revenue going to Washington owing to the SALT cap, and that coming from New York State’s income tax: our revenue is being invested in-state, providing billions in funding for things like education, infrastructure, clean energy, vocational training, childcare, and rent relief. These all help boost economic growth in our state, creating thousands of jobs, instead of sending that money to Congress for them to steer to pet projects in other states.
So with at least one more stimulus bill in sight, I urge Washington to swiftly put an end to the cruel SALT cap. I know that Senate Majority Leader Schumer recognizes the importance of this and I hope that, to quote another Brooklynite, he will do the right thing and ensure that the SALT cap goes.
