Repealing the $10,000 state and local tax deduction cap is likely to have uneven results for Americans.
In fact, Black families are 42% less likely and Hispanic families are 33% less likely than white ones to see a tax break from a SALT cap repeal, according to a recent analysis from the left-leaning Institute on Taxation and Economic Policy.
Lawmakers in several high-tax, high cost-of-living states are pushing to do away with the cap, which was enacted by former President Trump’s 2017 tax plan, saying that it raised taxes for some middle-class families.
However, repealing the SALT cap would exacerbate existing racial inequities, according to the institute’s analysis, a gap that President Joe Biden has pledged to narrow.
“There’s a long history in tax policy analysis of not paying enough attention to disparate impacts across race and ethnicity,” said Carl Davis, research director of ITEP who co-authored the study.
Disparity more pronounced in some states
What’s more, a SALT cap repeal would negatively impact minorities in the very states that would benefit most from doing away with the limit, the study found.
Put another way, Black, Hispanic and some Asian families in New Jersey, California, Illinois and New York would see an even smaller share of benefits from the SALT cap repeal than the national numbers.
Across all four states, Black families are between 44% and 54% less likely than white ones to see a tax break, and Hispanic families are 49% to 60% less likely than whites to reap benefits from a SALT cap repeal.
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In New Jersey, for example, 57% of families in the state are white, but 73% of benefits from a SALT cap repeal would flow to white families, the study found.
Hispanic families in New Jersey, who make up 20% of families in the state, would see only 9% of benefits, and the 13% of Black families in New Jersey would see about 6% of the tax cuts. Asian families, 9% of the state, would see about 11% of the benefits of a SALT cap repeal.
Roadblocks to a SALT cap repeal
To be sure, most American families of all races would see little to no benefit from a repeal of the SALT cap.
More than two-thirds of the tax cuts under a potential SALT cap repeal in 2020 would go to those making more than $200,000 per year, which is less than 7% of U.S. families, according to the institute.
Other studies have similar findings.
Only 9% of American households could see any benefit from a SALT cap repeal, according to the Tax Policy Center. The same analysis found that 96% of the benefits from a SALT repeal would flow to the top 20% of earners, with 57% of benefits going to those with earnings in the top 1%.
Still, the SALT repeal is an issue some states. A bipartisan caucus to repeal the SALT cap has said it will not vote for any legislation that doesn’t include ending the $10,000 limit, adding tension to the potential passage of President Joe Biden’s $2.25 trillion infrastructure plan.
The White House has been hesitant to agree to a repeal of the SALT cap due to the cost, however. In its first year, the measure brought in $77.4 billion, and removing the cap would cost about $88.7 billion in 2021 alone, according to the nonpartisan Joint Committee on Taxation. On Tuesday, Rep. Josh Gottheimer, D-N.J., suggested that cutting the SALT cap could be paid for by increased IRS audits.
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