If you were the owner of a median-priced home in Lloyd Harbor, N.Y., you would have paid more than $40,000 in annual property taxes in 2018 — higher than the U.S. median wage. New York is the highest-taxed state in the country, and Lloyd Harbor the village with that state’s heftiest property tax burden.
So it makes sense that Rep. Thomas Suozzi (D-N.Y.), whose district includes Lloyd Harbor, wants to let Americans living in high-tax jurisdictions deduct the full value of their state and local taxes — a.k.a., the “SALT” deduction. Said deduction was capped at $10,000 in 2017, and Suozzi has said that unless congressional Democrats repeal the caps, he won’t vote for the $3.5 trillion reconciliation package under consideration.
Suozzi’s job, of course, is to represent the interests of his constituents. But it would be outrageous for his fellow Democrats to give in.
Lloyd Harbor pays a fortune in taxes because the villagers make fortunes. The median income of Lloyd Harbor was more than $250,000 in 2019. Out of the town’s 1,196 households, only 41 were below the poverty level.
In this, Lloyd Harbor reflects the skewed income distribution of SALT. According to the Tax Foundation, just 13.7 percent of filers itemize their deductions — a prerequisite for deducting state and local taxes. Only at the top 10 percent of the income distribution do even a majority of taxpayers itemize. But among the top 1 percent of taxpayers, 92 percent do, and of course, their higher marginal tax rates make each deduction more valuable.
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So it is these taxpayers whom the SALT deduction primarily benefits. According to Maya MacGuineas of the Committee for a Responsible Federal Budget, households in the top 0.1 percent of earners would receive an average benefit of about $150,000, while those in the middle would get closer to $15. Repealing the caps would cost about $350 billion by 2026, and an estimated 85 percent of that revenue would end up in the pockets of the richest 5 percent of Americans.
You can probably think of many better uses of taxpayer money than giving a tax break to the most affluent people in the most affluent parts of the most affluent states in the country. Unless, of course, you are someone who would benefit from a larger SALT deduction. As, I admit, I would.
SALT beneficiaries tend to be full of arguments as to why they deserve their deduction. They’re not rich, they say, they just live in a high-cost area — as though living in that area were something that happened to them, rather than something they chose. Besides, they contend, our state and local taxes are going to pay for vital public services, and we shouldn’t be punished for doing the right thing by our neediest neighbors.
But the property taxes of communities like Lloyd Harbor are dedicated to local services such as police and roads that benefit the well-heeled people who live there. So is much of the revenue from state and local income taxes, though those governments certainly also spend money on the needy.
But as sociologist Joshua T. McCabe has pointed out, the richest states spend more on public goods because states with more affluent people can afford to levy higher taxes. It’s a lot easier to collect tens of thousands in taxes from the people of Lloyd Harbor than the residents of Shelby, Miss., which has median household income $27,112. “The fiscal capacity of wealthy Connecticut,” McCabe notes, “amounted to more than twice that of resource-poor Mississippi.”
Sure, in richer states, higher incomes are partly absorbed by higher housing costs and taxes — but other expenses are much the same almost everywhere, and higher incomes make cars and electronics and vacations much easier to afford. The expensive educations funded by property taxes help their children eventually command similarly high incomes, and for homeowners, those hefty mortgage payments build equity in homes they can eventually sell.
In the meantime, they’re all getting the benefits of the expensive areas in which they chose to live — not just the cultural amenities of a major city, say, but also deep labor markets where they maximize their chances of finding work that is satisfying as well as remunerative. And, of course, they enjoy a vibrant service economy built on catering to a highly concentrated population of affluent folks — and dependent on the concentrated population of low-wage workers that their tax dollars help care for.
When those folks compare themselves to similar neighbors, it may feel as though a six-figure income is really just middle-class and the resulting tax bill is an unfair burden. But in fact, they are rich, even if their house is smaller than what they could buy in some Florida exurb. It would be unseemly to argue that we lucky few deserve a special tax break for making a lot of money and spending it on things we value. Sadly, that clearly won’t stop Democrats from trying.