During much of the George W. Bush administration, a popular Democrat battle cry was “tax the rich.” The Democrats were incensed by the Bush-era tax cuts which lowered the rate charged to the highest brackets. During the Obama administration when those tax cuts expired, the Democrats fought tooth-and-nail to make sure the rates on upper incomes reverted back to their higher levels.
When President Trump passed his Tax Reform in 2017, a piece of the legislation increased taxes on the rich. The provision capped the federal deduction for state and local taxation. The move hit wealthy taxpayers in high tax states (typically controlled by Democrats) especially hard.
That’s what has Democratic governors like Andrew Cuomo (NY) so upset. Without the deduction to make New York’s high taxes more palatable, wealthy taxpayers are fleeing to states where their money is treated better. New York, meanwhile, is left to face the reality that punitive taxation has consequences. Ken Thomas reports in The Wall Street Journal:
Mr. Cuomo has said the law is prompting some wealthy New Yorkers and state businesses—who pay a disproportionate share of state income taxes—to move to other states. This has led to a drop in revenue of more than $2 billion in New York, state officials said.
Mr. Cuomo met with President Trump at the White House last week to discuss the tax dispute after the president expressed an openness to change the tax law after hearing from fellow New Yorkers hurt by the provisions.
With Democrats in control of the House, the governors said they planned to push Congress to revisit the cap on the tax deduction. Any measure would face an obstacle in the Senate, where Sen. Chuck Grassley (R., Iowa), head of the Senate Finance Committee, has said he has no plans to reconsider it.
Michael Zona, a Republican spokesman for the Senate Finance Committee, said the panel wouldn’t revisit the issue. “The SALT deduction is a federal subsidy for states to raise taxes on their residents without political consequence. The answer to the problem is for states to lower their taxes instead of insisting that taxpayers from lower-tax states subsidize their profligate spending,” Mr. Zona said.
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