Rep. Smith: ‘Largest benefits of SALT repeal would go to the highest earners’

June 25, 2019 — In Case You Missed It...    — Opening Statements   

WASHINGTON, D.C. –  The top Republican on the House Ways and Means Select Revenue Measures Subcommittee Adrian Smith (R-NE) delivered the following opening statement at a Subcommittee Hearing on How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values.

Before the start of today’s hearing, Rep. Smith and Rep. Kevin Brady (R-TX), the top Republican on the Committee, sent a letter to Ways and Means Committee Chairman Richard Neal (D-MA) and Select Revenue Measures Subcommittee Chairman Mike Thompson (D-CA).  CLICK HERE to read the full letter.

CLICK HERE to watch the hearing.

Remarks as prepared for delivery: 

“Thank you to our witnesses.

“Let me begin by saying this: property taxes and other high state and local taxes are a problem not just on the coasts, but all across our country.

“In Nebraska the problem with property taxes is particularly acute in rural, agricultural areas like the Third District where high land values in concert with a flawed state school funding formula lead to a massive property tax burden on producers, regardless of the state of commodity prices.

“While the Nebraska legislature has not yet found a solution, we can at least be thankful a preeminent question for Nebraska’s state senators and governor is ‘How can we reduce the tax burden on Nebraskans and make our state a more attractive place to live?’ not ‘How can we generate more revenue?’

“As we review the impact Tax Cuts and Jobs Act on Americans and on our economy, it is important we consider provisions and proposed changes within the full context of the law. 

“The SALT cap must also be viewed through the prism of lower overall tax rates for families in TCJA.  Even with the SALT cap in place, most families have lower overall federal tax bills now than they did prior to TCJA.

“Before TCJA, the deductibility of state and local taxes was already limited in various ways, including under AMT and through the Pease limitation. In addition, the SALT deduction is only useful if your itemized deductions exceed the standard deduction.

“In TCJA we doubled the standard deduction to $12,000 for individuals and $24,000 for married couples – meaning, even with a $10,000 cap on SALT deductions, a married couple could cumulatively spend $24,000 on state and local taxes before they are guaranteed to be affected by this cap. 

“For example, for a married couple with no children in California which rents its home wouldn’t pay more in state income taxes than the value of their standard federal deduction until their income exceeds $300,000.

“This highlights one of the biggest problems with proposals to repeal or increase the SALT caps – we know the benefit of such a repeal, which is estimated to cost $673 billion over the next eight years, would accrue largely to the highest income taxpayers in high tax states.

“More fundamentally, the SALT deduction is a matter of fairness to taxpayers across the country.  Tax reform aims to achieve a principle that is straightforward, at least to folks outside the Beltway, those with similar levels of income have a similar Federal income tax bill.  We shouldn’t effectively have one federal income tax rate for the wealthiest portions of California and New York, and another, much higher, rate for Nebraska or South Carolina. 

“If some communities want to have high levels of government spending in their community, that is completely fine so long as they pay for it.  Regressing to the prior-law SALT deduction instead would tell communities to spend more, because they can shift those costs to the rest of the country.  Such policy is  both inefficient and unfair.

“We also know the largest benefits of SALT repeal would go to the highest earners, with the average family making $1 million or more per year seeing a tax cut of $67,000, and the average family over $3 million per year receiving at tax cut of $140,000 under such a proposal.

“Contrast that with our approach when we crafted this SALT limitation. 

“Under TCJA a single mom with two kids making $50,000 per year has no federal income tax liability, and the SALT cap was specifically designed to ensure a typical family earning up to $200,000 per year would be held harmless, as the average SALT deduction pre-TCJA for that group was in the $7,000 range. 

“The average middle-class family making $50,000 to $75,000 would receive less than $5 per year if the SALT cap were repealed.

“In an environment where just last week the majority chose to mark up legislation to expand provisions like the Earned Income Tax Credit and the deductibility of the Child Tax Credit, this push to enact a giveaway like expanding or repealing SALT caps is baffling.

“There are many ways we could be working on a bipartisan basis to improve the internal revenue code.  While I hope we can engage in a constructive conversation today, I don’t think this is one of them.

“I yield back.”