The “new” federal tax law
March 13th, 2019
As some of you may know, Andrew Cuomo, governor of New York recently criticized President Trump for last year’s tax overall. Left-wing criticism of the president is nothing new, but Cuomo’s complaints were very interesting in that he was bemoaning the new tax laws “burden” on the rich, and that this hardship was causing “the rich” to move out of New York, causing a $2 billion dollar short fall in revenue for the state.
It is the usual narrative of the radical left that Trump’s tax law has favored the rich and punished the poor, though anyone who has read even the most general interpretation of the new tax law knows that the opposite is true, hearing a ranking democrat admit that the new law in fact hurts the rich and that hurting the rich has hurt their state.
Several features of the new tax law are worth looking at: First the the standard deduction is $12,000 for single filers and $24,000 for married couples filing jointly. This is approximately twice the amount in the old law. So for example if you work at McDonald’s and make $24,000 per year, now you have a standard deduction of half your yearly pay. If you make $1 million a year a $12,000 deduction means absolutely nothing.
Next the new law caps State And Local Tax (SALT) dedication at $10,000 per year. SALT includes property tax, sales tax, gasoline tax and other taxes levied by states, counties and cities. When I first read that last year I was concerned, because many people would be burdened by not being able to fully deduct their property tax. But as I though it through I realized why this cap was important. First lets look at how it effects property tax. If you own your home, and it is assessed at $500,000, in most states that will amount to about $5,000 in property tax, about half of the cap, leaving another 5k for other state and local taxes. On the other hand if your home is assessed at $2.7 million (the values of Elizabeth Warren’s home in Cambridge Mass), you would have a tax liability of over $27,000 per year, and would only be able to deduct the first $10,000. So, Elizabeth Warren might not like the new tax law, but then she would have as hard a time claiming to be poor as she did claiming to be native American.
In General the new SALT cap won’t hurt most middle and lower income people in terms of property tax, with the one exception being those who own rental property and though owning rental property doesn’t make you rich it is also unlikely that owning over $1 million is rental property makes you poor.
State income taxes are another matter, and the reason that I believe the SALT cap was necessary. Most states have an income tax and with the previous tax law taxes paid to the state could be deducted from your federal income taxes. In the extreme a state could continue to raise their state tax to the point where a resident would not pay any federal tax as it would all go in state taxes. With the level of partisan obstructionism just imagine how that might cripple the federal government.
So Governor Cuomo was quite right that the president’s tax law does place a harder burden on higher income tax payers. The startling thing was the he admitted that the democrat narrative was false. But Cuomo went a bet further when it pointed out that driving out the rich will harm the job market. It is certainly true that those who create jobs are normally in the higher income bracket, which is why the tax rate was lowered in the highest tax class, but that will do New York no good if these job creators move to Florida or Texas. Job creators want to build successful businesses in states that want prosperity and jobs that accompany prosperity.
In the end, most of us will gain from the new tax law, a few will not, but the indisputable truth is that lower income people will benefit most and high tax states will have their greedy and insatiable appetite for taxation put in check.