Gov. Phil Murphy has long said the SALT cap was a political ploy aimed at hurting Democratic strongholds.
Now, weeks after getting billions of dollars in aid from the federal government but failing to get the State and Local Taxes cap rescinded by a Democratic administration in Washington, D.C., Murphy led a group of seven governors in sending an open letter to President Joe Biden, suggesting the cap represents double taxation.
“For the first time since Abraham Lincoln created the federal income tax, the cap on SALT deductions established a system of double taxation, where 11 million Americans were forced to pay taxes on the amount they paid in state, local and property taxes, to the tune of $670 billion over a decade,” the group wrote.
Murphy was joined in the letter by Govs. Kate Brown (Oregon), Andrew Cuomo (New York), David Ige (Hawaii), Ned Lamont (Connecticut), Gavin Newsom (California) and J.B. Pritzker (Illinois).
The group said it’s a matter of tax fairness.
“Before this cap, New Jersey already paid far more to the federal government in taxes than it received,” he said. “Now, the disparity is even greater, as middle-class families in New Jersey face a larger tax burden as they subsidize federal payments to other states.
“The Biden administration must support Congressional efforts to eliminate this cap and bring fairness back to our tax system.”
In the letter, the governors listed a number of ways their states have been hurt financially, including:
- New Jersey: Taxpayers are forced to pay an additional $3 billion in taxes;
- New York and California: Taxpayers are each being forced to pay more than $12 billion in additional taxes;
- Connecticut: Taxpayers paid $1.3 billion more — from a state that already receives back less per capita than any other state.
Even more, the governors say businesses do not face the same issue.
“In short, middle-class Americans are struggling under this federal tax burden, while corporations — which are still able to fully deduct SALT as business expenses — are profiting because of the same law,” they wrote. “The negative impacts of the SALT cap on middle-class families are particularly egregious when you consider that, in the states most affected by this cap, the federal government already takes more in federal taxes than the states receive in federal support, effectively subsidizing federal payments to other states.”
Here is the full letter:
Dear President Biden:
Thank you for your leadership during these unprecedented times. As more vaccines become available to Americans, there is a clear light at the end of the tunnel, and we look forward to a renewed sense of normalcy and optimism in our country.
Your administration has already taken incredible steps to ease the burden of more than a year of uncertainty caused by a global pandemic, and for that we are grateful. The American Rescue Plan will help more than 160 million Americans with direct payments and provide our states with the resources to keep teachers and first responders on our payrolls. Rental assistance funds will help keep roofs over the heads of our most vulnerable and the funding for schools will help keep our students safe in their classrooms.
We applaud those efforts to help our citizens. But we must go further and undo the cap placed on State and Local Tax (SALT) deductions by the Trump administration through the Tax Cuts and Jobs Act in 2017. For the first time since Abraham Lincoln created the federal income tax, the cap on SALT deductions established a system of double taxation, where 11 million Americans were forced to pay taxes on the amount they paid in state, local, and property taxes, to the tune of $670 billion over a decade.
Like so many of President (Donald) Trump’s efforts, capping SALT deductions was based on politics, not logic or good government. This assault disproportionately targeted Democratic-run states, increasing taxes on hardworking families. This was unacceptable then, and is simply untenable given the dire economic conditions caused by the pandemic.
In 2019, governors came together to form a coalition of states to fight for tax fairness to overturn the artificial cap on SALT deductions. In New York and California, taxpayers are each being forced to pay more than $12 billion in additional taxes to the federal government annually. In New Jersey, taxpayers are forced to pay the federal government approximately $3 billion a year in additional taxes. In Hawaii, taxpayers are forced to pay an extra $370 million in additional taxes. In Connecticut, which pays more to the federal government and receives back less per capita than any other state in the nation, taxpayers paid $1.3 billion more in additional federal income taxes because of the SALT cap. Several states commenced litigation against the constitutionality of the law. The cases are still pending.
In short, middle-class Americans are struggling under this federal tax burden, while corporations — which are still able to fully deduct SALT as business expenses — are profiting because of the same law. The negative impacts of the SALT cap on middle-class families are particularly egregious when you consider that, in the states most affected by this cap, the federal government already takes more in federal taxes than the states receive in federal support, effectively subsidizing federal payments to other states.
It was heartening to hear Treasury Secretary (Janet) Yellen agree to work with Congress to ease the $10,000 cap on SALT recently. On behalf of our residents, we urge your administration and Congress to continue these efforts to relieve this immense financial burden on our residents and eliminate the SALT cap entirely.
Signed,
Govs. Kate Brown, Andrew Cuomo, David Ige, Ned Lamont, Phil Murphy, Gavin Newsom and J.B. Pritzker
