Speaker Says Dire Warnings About SALT Cap Have Yet to Come to Pass

Chris Gaetano
Published Date:
Nov 7, 2019
Untitled design - 2019-11-07T150618.680

Douglas Stives, an accounting professor at Monmouth University and a speaker at the Foundation for Accounting Education's Nov. 7 Tax Planning for Individuals Conference, recalled that the $10,000 cap on state and local taxes (SALT) passed as part of the Tax Cuts and Jobs Act (TCJA) was predicted to have a devastating impact on states like New York and New Jersey, but he said that he was skeptical of those claims then, and remains skeptical now.

The $10,000 cap on SALT deductions, which had previously been unlimited, was seen by many as political, including New York Gov. Andrew Cuomo, who called it tantamount to economic warfare and a way to rob blue states to subsidize tax cuts in red states. Stives said he believes this was exactly the intention, saying Congress effectively said, "What can be done to make people in this coast and this coast miserable?" even though he said, "They'll never admit it." 

Since then, he said, he has frequently had people warn him that this measure will have a major impact on states affected by the cap, and could prompt people to flee into lower-tax jurisdictions. While he conceded that the very wealthy are probably doing this, (and he said this is unlikely due to the SALT cap alone), this has yet to happen for everyone else. 

"[People say] to me, 'Doug, everyone will move out of New Jersey because of this SALT thing.' That hasn't happened. They're building," he said. 

This is because, he said, the SALT cap is simply not relevant to most people. Half of Americans, he said, pay no federal income tax and so why would they care about SALT deductions at all? And then, among those who do pay federal income tax, 92 percent use the standard deduction ever since the TCJA doubled it, meaning they're not itemizing anyway. And then, even accounting for the nonfederal taxes themselves, he said the vast majority, 90 percent, don't have more than $10,000 in state and local taxes anyway. And even if they do, many are still subject to the alternative minimum tax, so the deduction wasn't very useful even before. 

Stives' fast-paced presentation went through a large number of other TCJA-related tax provisions too, such as the child tax credit, which he said wasn't as good a deal as people might think. He noted that the switch from exemptions to a fixed credit means brackets don't really matter the way they used to. Further, he noted that there's a steep drop-off once the child is around college age. The child-tax credit, which is 70 percent refundable, is worth $2,000 between up to the age of 17. Once that happens, the child now qualifies for just a family tax credit, which is completely nonrefundable and worth $500. 

"Your $2,000 credit, concurrent with the kid going to college, drops to $500. They stole $1,500 dollars from you," he said. He noted that there were college student credits before, but these were not renewed. He wondered, "What does Congress have against ... families spending 60, 70, 80 thousand dollars after tax to send their kids to college?" 

He also spoke about smaller changes, such as the introduction of the new Form 1040-SR, which is a simplified Form 1040 with a larger font size. 

"For who?" he said. "People like me, the old guys out there. It's a senior-restricted return, and it's real simple. Remember the 1040-EZ and 1040-A? [With those now gone,] they came up with this thing. ... At the bottom, they came up with the standard deduction, so you don't need to guess what it is." 

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