WASHINGTON — As president, Donald Trump eliminated a lucrative tax break that benefited coastal donors and suburban swing-state voters. Now he’s promising to bring it back — if they put him back in the White House.
Trump aides say he is not releasing any hostages or even changing his mind about the $10,000 annual cap he has imposed on the federal deduction taxpayers can claim on their state and local taxes — the “SALT cap,” in Washington parlance. Instead, a campaign official said, Trump is responding to new economic realities as he pursues a “two-pronged” solution. The first is to promote pro-growth policies and the second is to adopt tax positions that would allow people to keep more of their money.
According to Caroline Bruckner, director of the Kogod Tax Policy Center at American University, it’s not just the economic changes that Trump has brought about.
“The change in the cap on the deductibility of state and local taxes was an easy move to target revenue flowing to blue states,” Bruckner said of the 2017 law, which used the SALT cap as a budget offset to pay for other tax cuts. “Now it appears that higher-income taxpayers in swing states have successfully made their case to Trump.”
The reversal is one of several freebies that Trump and his rival, Vice President Kamala Harris, are offering voters in the final stretch before Election Day. Together, they are promising the equivalent of a tax break in each pot.
Both candidates pledge to block tip taxes for service workers. Trump says he would protect seniors from taxes on Social Security. Harris is pumping steroids into Biden administration proposals to expand the child tax credit and subsidize first-time homebuyers. She’s also offering a deduction of up to $50,000 in the first year for small start-ups.
There are also big-spending promises, such as Trump’s announcement (the details of which have yet to be worked out) that he will offer free in vitro fertilization treatments to people trying to conceive.
“This is the time of the crazy times, where everything is free,” said former Rep. Charlie Dent, Republican of Pennsylvania, who was a leader among moderate GOP members in Congress.
“This is really one of the biggest challenges in the country right now, that there needs to be a serious conversation about some form of fiscal restraint,” Dent said. “These kinds of proposals are just designed to appease the public. I can’t imagine that any of the things we just listed will ever become law, but they make for good advertising and they certainly raise expectations for people and they end up disappointing a lot of people and driving cynicism.”
Each plum or carve-out appeals to a different segment of the electorate. All would add to annual federal deficits — and the accumulated national debt of more than $35 trillion — if they could be implemented. But none would have an easy path to enactment.
“Given the magnitude of our debt problems, I would like to see the candidates competing over who can reduce the debt and save Social Security,” said Marc Goldwein, a senior vice president at the nonpartisan Committee for a Responsible Federal Budget. “Instead, they appear to be competing over who gets to spend more of our grandchildren’s money.”
In other words, the part of the campaign that serves ice cream with every meal threatens to blow a hole in the budget.
While Goldwein’s group is still working on a lengthy analysis of the fiscal implications of the two candidates’ platforms, the outlines are dark in red ink. Trump’s proposal to repeal the SALT cap, which expires next year unless Congress acts, would reduce federal revenues by $1.2 trillion over a decade, according to CRFB’s estimate.
Harris has announced proposals to raise taxes on corporations, investors and high-income earners in ways that could result in a net reduction in deficits and debt — at least on paper — according to an analysis by the nonpartisan Tax Foundation. But it may be more politically feasible for a Harris president to cut taxes, such as the $1.6 trillion it would cost to restore the child tax credit and expand it to $6,000 for the first year of a child’s life, than to raise them.
“Neither candidate is talking about any substantial ways to reduce the deficit,” Goldwein said. “It looks like they’re both going to be in the red, and President Trump in particular.”
Harris’ camp points to her attempts to offset the costs of some of her promises, and Trump’s failure to do so.
“Donald Trump won’t pay for his agenda, but the middle class will: with higher costs, cuts to Social Security and Medicare, and less economic opportunity,” said Harris campaign spokesman James Singer. “Vice President Harris will make billionaires and big corporations pay their fair share while she builds the middle class and creates an economy of opportunity where everyone has a chance to compete and a chance to succeed.”
Still, there are reasons to doubt Harris’ ability to pay for her platform.
One of Harris’s centerpiece proposals is to begin taxing paper gains on the assets of wealthy investors before they’re sold — a levy on “unrealized gains” that’s part of a broader plan to create a 25% minimum tax on all income for people making more than $100 million a year. Like many of the policies Harris has unveiled since becoming the Democratic nominee, it closely follows provisions of President Joe Biden’s agenda that have never gained traction.
“Every conversation I’ve had is that it’s not going to happen,” billionaire Mark Cuban, a Harris supporter, said in an interview with CNBC this month. “If you tax unrealized gains, you’re going to destroy the stock market.”
Trump’s about-face on the SALT cap raised eyebrows in both parties because it paid for a substantial portion of his flagship 2017 tax cut. And because the repeal he now supports would help many voters in Democratic states at the expense of voters in Democratic states.
But from an electoral policy perspective, that may be the point. He can afford to upset voters in certain low-tax states — many in the Deep South — where he is likely to win by overwhelming margins. No one thinks the plan will persuade Republicans in states like South Carolina and Mississippi to vote for Harris.
But the tax giveaway could help attract donations at a time when his campaign is desperately trying to keep up with the flood of money that has poured into Harris’ coffers. The top 10 counties with the highest average reported state and local tax burdens for taxpayers who itemize deductions are all in donor havens, according to data compiled by the Tax Foundation and analyzed by NBC News.
They are: Manhattan; three counties that include San Francisco and Silicon Valley; the counties with the most upscale Western resorts – Sun Valley, Idaho, Aspen, Colorado and Jackson Hole, Wyoming; and the posh suburbs of Westchester County, New York and Fairfield County, Connecticut.
Perhaps more important is the smaller but noticeable effect the plan would have on suburban voters, including those in swing states. In Maricopa County, Arizona’s largest, Trump lost by 2.2 percentage points in 2020 on his way to an even narrower defeat statewide. The average taxpayer who itemizes deductions in the county reported state and local taxes of $14,083, according to the Tax Foundation — about $4,000 above the cap on deductions Trump set.
Trump was smoked in the suburbs around Philadelphia in 2020, in part because Biden — who hails from nearby Wilmington, Delaware — is a familiar face in the local media. But many voters in those counties would benefit significantly from a repeal of the SALT cap. The average itemizing taxpayer in each of those counties — Montgomery, Chester and Delaware — reported state and local taxes of about double the cap. The same was true in Allegheny County in Pittsburgh, in the western part of the state.
“In the collar counties of Philadelphia, where you have pretty high property taxes, it does make a difference,” Dent said, adding that it might make more sense to raise the cap slightly — and index it — than to eliminate it.
“That way we could protect more middle-income and upper-middle-income people who could be negatively impacted,” Dent continued, without cutting federal revenues to protect the wealthiest taxpayers.
This article was originally published on NBCNews.com
