Wealthy professionals on both coasts of the United States would receive a massive tax windfall if Congressional Democrats are successful slipping in one of two competing plans to change the State and Local Tax (SALT) deduction - which was capped at $10,000 as part of the Trump tax plan.
According to a Bloomberg-sponsored analysis by accounting firm Marcum, those with six-figure salaries and high property / state income tax bills will benefit the most.
If Democrats get their way in the new reconciliation bill, the rich - and the superrich - would be able to deduct up to $80,000 of SALT.
Dems, of course, are pitching it as a benefit to the middle-class.
"This fix will put money back in the pockets of hardworking, middle-class families in our districts and help ensure that our local communities can continue making the investments that we need," said Reps. Tom Suozzi (D-NY) and Mikie Sherrill and Josh Gottheimer (D-NJ) said in a statement.
In an attempt to temper outrage over a tax cut for the uber-wealthy, Rep. Bernie Sanders (I-VT) and Bob Menendez (D-NJ) have suggested limiting the SALT cap removal to households under a certain threshold which has ranged from a proposed $400,000 to $500,000. Sanders said his plan is a "proposal that protects the middle class, but does not end up with an overall reconciliation bill in which millionaires are better off tax-wise than they were under Trump," adding that rich taxpayers would still be able to deduct $10,000 in SALT as they can under current law.
The practical impact of each proposal would vary widely based on where a taxpayer lives, what they pay in property taxes and how many other deductions they claim, including for mortgage interest and charitable donations. -Bloomberg
According to Marcum, a married suburban couple in New York earning $150,000, who have a $400,000 mortgage, pay $10,000 in property taxes, and have $2,500 in charitable donations per year would save them $1,743, lowering their overall tax rate by 1%.
For a couple earning $400,000 - owing $25,000 in property tax, deduct interest on a $750,000 mortgage, and give $6,000 to charity each year, they would be able to deduct over $50,000 in SALT expenses on their federal returns - saving nearly $12,000 for a 3% drop in their effective tax rate.
A family earning $600,000 would also get roughly 3% knocked off their federal tax bill, for a savings of $19,251.
By capping the SALT deduction at $80,000, a wealthy taxpayer paying the top federal rate of 37% would get, at most, $25,900 in tax relief. For the couple earning $35 million, this savings represents just 0.07% of their income. -Bloomberg
"It gives some benefit to the wealthy, but it’s a negligible benefit," said Marcum tax partner Ronald Finkelstein, who added that the alternative minimum tax (AMT) will also limit the SALT advantage for some of these taxpayers.
Republicans have slammed the plan, with Rep. Kevin Brady of Texas saying "The occupants of the penthouse are getting a bundle, but the building janitor gets nothing."
As Finkelstein noted, those who would benefit the least from the SALT deduction are high earners from states including Florida, Texas and Nevada, which don't have state income taxes.