Impact of the SALT cap to New Yorkers is overstated

A Donald Trump tax policy that has been criticized by New York Democrats and Republicans since it was enacted seven years ago is back in the news. 

The Tax Cuts and Jobs Act, signed into law in December 2017, limited the amount of state and local taxes single filers and married couples filing jointly could deduct from their federal income taxes to $10,000. This measure was meant to pay for other tax cuts in that legislation, and it affected people in high-tax states such as New York. Legislation from House Republicans to briefly double the cap for married couples earning up to $500,000 was defeated in February. Lawmakers from low-tax states have little appetite to reverse the cap, which brings in revenue from high-income earners that pays for other tax cuts in the bill. 

Rep. Ritchie Torres, D-N.Y., mentioned the cap on state and local tax (SALT) deductions before former President Trump’s campaign rally in that borough. 

"The loss of SALT deductibility cost our state $15 billion in revenue," Torres said. "So New Yorkers are paying more in taxes and receiving fewer services because of Donald Trump." 

Because Trump’s policies are in the news as he again runs for president, we wanted to know whether Torres’ claim is correct. 

The $15 billion revenue loss figure came from New York state, said Benny Stanislawski, Torres’ communications director. 

The claim that "the loss of SALT deductibility cost our state $15 billion in revenue" could lead the reader to believe that New York’s tax revenue has fallen by $15 billion. But the $15 billion figure cited in the state financial analysis refers to the financial hit to New Yorkers who can no longer claim their entire state and local tax bills — including personal property and income taxes — on their federal income taxes. (Experts disputed this figure, more on that shortly.) 

In January 2018, New York state’s Department of Taxation and Finance found that state taxpayers were poised to lose $14.3 billion every year because of the SALT cap. State officials soon said that the cap was costing New Yorkers up to $15 billion yearly. 

But state budget officials told reporters in 2018 that the $15 billion figure does not account for the savings New Yorkers enjoy from other tax benefits contained in the Tax Cuts and Jobs Act. When the IRS data came in, it showed New Yorkers actually paid less in federal taxes, not more. In 2018, the first tax year affected by the 2017 law, the data showed that New Yorkers actually paid $3.4 billion less in total federal taxes, according to the conservative Empire Center for Public Policy. 

The rest of Torres’ claim: "So, New Yorkers are paying more in taxes and receiving fewer services because of Donald Trump," could be read several ways. Coupled with the earlier sentence, the reader could think that the state has less revenue, and therefore can provide less services. 

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stated on October 27, 2024 in Social media posts

Photo shows people lined up outside Madison Square Garden before an Oct. 27 rally by former President Donald Trump.

The SALT cap immediately affects federal income tax filers, but less money in people’s pockets could lead to a negative impact on the state’s financial activity, which affects state and local tax collections. 

If the SALT cap were repealed, the state would support an additional 107,000 full-time jobs, and total economic activity lost as a result of the cap is from $14.4 billion to $24.5 billion annually, depending on how the figures are calculated, the state Division of Budget found in 2020. This analysis assumed that taxpayers would lose $12.3 billion because of the SALT cap, which is contradicted by the IRS data. 

"In general, it’s hard to estimate the ‘cost’ of the SALT cap since the TCJA had so many other provisions that had direct or indirect impact on state revenues," said Lucy Dadayan, who follows state finances and is the Urban Institute Tax Policy Center’s principal research associate.  

An expert at the Tax Foundation, which supported the Trump policy, told us that most taxpayers saw a net tax cut, even those who saw a gross tax increase from the SALT cap. 

"It is likely that the $15 billion estimate is a gross tax change, not the change in taxes owed on net from the entire 2017 tax law," said Garrett Watson, senior policy analyst and modeling manager. 

E.J. McMahon, founding senior fellow of the Empire Center, who has followed state finances for years, wrote in 2021 that the SALT deductions cap has led to higher federal taxes for only a small number of New Yorkers, mainly those who make more than $1 million a year, because the Tax Cuts and Jobs Act contained other tax cuts.   

Another state and local tax expert, Richard C. Auxier, principal policy associate at the Urban-Brookings Tax Policy Center, said that although some Empire State filers paid more, the average New Yorker got a tax cut from the Tax Cuts and Jobs Act. That’s because it is a giant tax bill with lots of tax changes in addition to the SALT cap. On balance, it was "ultimately a massive tax cut," he said. 

"The SALT cap did have a noticeably negative effect on New Yorkers relative to other states — even if most people in the state (and across the country), on average, got tax cuts," Auxier said. 

Torres claimed that Trump’s tax policies cost the state "$15 billion in revenue. So, New Yorkers are paying more in taxes and receiving fewer services because of Donald Trump." 

The state has calculated that New Yorkers are paying up to $15 billion more in taxes with the cap on the SALT deduction, but this analysis does not account for the net effect of all of the provisions in the Tax Cuts and Jobs Act.

Some New Yorkers are paying more in taxes, but many are not. 

Because this statement contains some element of truth but ignores critical facts that would give a different impression, we rate this Mostly False.