DV Journal

Congress and President Trump are working to pass the “One Big Beautiful Bill” legislation that makes the Trump tax cuts permanent, cuts spending by $1.7 trillion, secures the border and strengthens the U.S. military.

But. Always a “but.”

Some congressmen have been threatening to vote against the bill if it fails to raise the cap on SALT significantly. No, it’s not the alternative to pepper. SALT is the acronym for State and Local Taxes.

Today, you can deduct $10,000 of your state and local tax payments from your income before you calculate your federal income taxes. The vast majority of taxpayers (91 percent) claim no SALT deduction at all, while taxpayers with incomes of $200,000 or more receive 65 percent of the SALT deduction’s tax benefits.

Who is affected by the limit on the deductibility of State and Local Taxes? Those with very high incomes who live in states with very high income taxes and very high property taxes. Think New York City, San Francisco and Los Angeles.

Thinking politically: Blue cities in Blue states. Cities with mayors who refuse to control city spending. Governors who refuse to control state spending. They like the federal subsidy for their higher taxes.

Some congressmen think we should change federal law to make it easier for politicians at the state and local levels to increase taxes. Then the local pols could say — “Hey, why complain about my property hikes and income tax increases. Those are deductible against federal taxes. If I, your mayor, didn’t take your money, the feds would tax what I don’t take.”

Think of the deductibility of SALT as a subsidy for big government at the state and local levels. It helps mayors and governors sell higher state and local taxes.

Not all states care.

Eight states do not have to worry about whether or not their state income tax payments are deductible when calculating federal taxes. Those states have zero state income tax. You read about them in the annual reports, where you learn that many Americans move to states with no income taxes: Texas, Florida, Tennessee, Nevada, New Hampshire, South Dakota, Wyoming and Alaska.

In addition, there are 10 states where the governor and state legislature have initiated the process of phasing their state income tax to zero: Arizona, Iowa, Indiana, Oklahoma, North Carolina, South Carolina, Mississippi, Louisiana, Utah and Arkansas.

Several states limit the power of local governments to raise property taxes through state laws and constitutional amendments.

The deductibility of SALT requires Americans in all states to pay the taxes of higher-income Americans in blue cities in blue states.

If all state and local taxes were deductible, it would shift $1.2 trillion in taxes onto the rest of us. That is a significant subsidy to keep Democratic mayors and governors from having to govern effectively.

How could this problem of high taxes be fixed at the city and state levels?

Citizens who live in blue cities can vote for mayors who limit spending and taxes. Citizens in blue states can elect governors and state legislators who have some self-control over other people’s money.

Equally important to limiting the importance of SALT/NO SALT is reducing tax rates for federal taxpayers. And the senators from New York and California who complain about losing SALT deductions are the same politicians who imposed high tax rates on all federal taxpayers in California and New York and other blue high-tax states.

The Trump tax cut will become permanent law. Tax rates will not be increased. Expensing of business investment will create jobs and opportunities. And if the economy grows at 3 percent yearly instead of 1.5 percent, as predicted by White House economist Kevin Hassett, revenue would increase by $4 trillion over a decade.

It may be necessary to raise the SALT cap to get the Big Beautiful Bill across the finish line. However, the more Congress increases the SALT cap, the more it allows progressive politicians to get away with high taxes and high spending.

The GOP-controlled Pennsylvania Senate has approved the largest tax cut in Keystone State history, slashing taxes by $3 billion.

The proposal is a Republican rebuttal to Democrat Gov. Josh Shapiro, whose proposed $48.3 billion state budget would increase spending by $3.7 billion or 8.4 percent over the current year.

Senate Bill 269 passed the Senate in a 36-14 vote over the objections of Democratic leaders, though eight Democrats broke ranks to back the GOP proposal.

It would reduce the Personal Income Tax (PIT) rate from 3.07 percent to 2.8 percent, lowering the income tax to its pre-2004 rate.

“If you work and pay taxes, you deserve a tax cut. People should keep more of their own hard-earned money,” said Delaware Valley Sen. Jarrett Coleman (R-Bucks). “This plan could jumpstart Pennsylvania’s economy by putting $3 billion back into the pockets of taxpayers, who then could spend or invest it in our communities.”

It would also eliminate the gross receipts tax on energy, effective on January 1, 2025, providing relief from high energy costs. The 4.4 percent gross receipts tax on profits of private electric utilities is passed along to consumers.

“Cutting income taxes and the tax on energy bills is a much better option than the governor’s plan for new government spending,” said Montgomery County Sen. Tracy Pennycuick (R). “The Senate Republican Caucus plan invests $3 billion into all Pennsylvanians, by lowering their utility bills and adding more money to their paychecks – not by massive expansions of government programs.”

The state’s free-market think tank also supports the bill.

“We applaud the Senate for putting taxpayers first and passing SB 269,” said Commonwealth Foundation Senior Vice President Nathan Benefield. “Voters overwhelmingly express concerns with the rising cost of living. Simultaneously, they believe Gov. Shapiro’s proposed budget spends too much and want lawmakers to reduce wasteful government spending.

“In contrast to Shapiro’s massive, unending deficit spending and proposed energy taxes, the Senate plan would keep more money in the hands of working families while reducing energy costs,” Benefield said.

The two sides are debating what to do with the $14 billion in excess revenue Pennsylvania will have in reserve as of July 1. Shapiro has proposed major spending increases, including an additional $1 billion in public school spending. He says the GOP proposal is a sign that “Senate Republican leaders are … acknowledging that we must invest in Pennsylvania’s future,” according to a statement from his office.

Tomeka Jones-Waters, president of AFSCME Local 2587 says the tax cuts would be bad for government workers and the Pennsylvanians who rely on them for services.

“A $3 billion tax cut to public services would be detrimental for workers and their families, and to families in need of these services to survive,” Jones-Waters said. “Instead of giving tax cuts to the wealthy, invest that money in those who need it most.”

But Republicans retort that if the taxpayers have overpaid for government, that money should go back to them — not spent by politicians in Harrisburg.

“Given the state’s current financial position, I believe the most responsible thing we can do today is to give this money back to the hard-working families and small businesses I represent in Berks and Montgomery counties,” said Pennycuick.