Bill Overview
Title: SALT Act
Description: This bill modifies the limitation on the tax deduction for certain state, local, and foreign real and personal property taxes. Specifically, the bill denies a tax deduction for foreign real property taxes to any individual taxpayer with an adjusted gross income that equals or exceeds $400,000. It also limits the deduction for the aggregate amount of other state and local taxes and sales taxes for such taxpayers to $60,000 in a taxable year. The bill transfers revenues from this bill to a Medicare Vision and Hearing Trust Fund to provide vision and hearing benefits under the Medicare program.
Sponsors: Rep. Malinowski, Tom [D-NJ-7]
Target Audience
Population: Individuals with adjusted gross income of $400,000 or more
Estimated Size: 3000000
- The bill affects taxpayers with an adjusted gross income of $400,000 or more.
- The bill places limitations on deductions for state, local, and foreign real property taxes, impacting taxpayers who itemize deductions and who are subject to the Alternative Minimum Tax (AMT).
- It directly influences individuals who have foreign real property and claim these taxes as deductions.
- There are distributional impacts based on income levels, specifically targeting higher-income taxpayers.
- Middle and lower-income taxpayers below the $400,000 threshold are not impacted by these specific limitations.
Reasoning
- The policy primarily impacts taxpayers with adjusted gross incomes of $400,000 or more, which constitutes about 1-2% of the US population. This market segment often includes high-income earners in states with high local taxes who utilize SALT deductions.
- Individuals who are directly affected are those that itemize, especially those subject to the AMT since state and local tax deductions are capped, potentially increasing taxable income.
- The indirect benefits, like improved vision and hearing care through Medicare, may over time affect a broader population positively, especially retirees, but this impact is not immediate for most middle- to lower-income individuals.
- Given the policy's budget and the estimated number of affected taxpayers, it is constrained to those earning above $400,000 and doesn't affect the majority of Americans who are under the threshold.
Simulated Interviews
Financial Advisor (New York, NY)
Age: 45 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 3/20
Statement of Opinion:
- The cap on deductions might increase my taxable income significantly.
- My property in London won't provide the deductions I used to benefit from, impacting my overall financial planning.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 8 |
| Year 2 | 7 | 8 |
| Year 3 | 7 | 8 |
| Year 5 | 6 | 7 |
| Year 10 | 5 | 7 |
| Year 20 | 5 | 6 |
Tech Executive (San Francisco, CA)
Age: 52 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 15.0 years
Commonness: 2/20
Statement of Opinion:
- The policy will affect my ability to deduct taxes on my foreign property.
- I'm concerned about increased tax liabilities impacting investment strategies.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 5 | 6 |
| Year 10 | 5 | 6 |
| Year 20 | 5 | 5 |
Software Engineer (Austin, TX)
Age: 30 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- The policy does not directly impact me as I don't meet the income threshold yet.
- However, I worry about same-category policies affecting potential future income.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 8 | 9 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Retired Business Owner (Miami, FL)
Age: 60 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 2/20
Statement of Opinion:
- The deductions cap impacts my overall financial strategy, especially concerning my overseas properties.
- Increased taxable income will decrease funds available for other investments.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 5 | 7 |
| Year 10 | 5 | 6 |
| Year 20 | 4 | 5 |
Entrepreneur (Chicago, IL)
Age: 38 | Gender: other
Wellbeing Before Policy: 8
Duration of Impact: 3.0 years
Commonness: 5/20
Statement of Opinion:
- Fluctuating income makes it unclear if I'd qualify to be impacted this year.
- If affected, the changes will marginally affect my investment capabilities.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 7 | 8 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Corporate Lawyer (New Jersey)
Age: 50 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 20.0 years
Commonness: 4/20
Statement of Opinion:
- High state taxes mean I rely heavily on these deductions for financial planning.
- This policy will increase my taxable income.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 5 | 7 |
| Year 5 | 5 | 7 |
| Year 10 | 5 | 6 |
| Year 20 | 5 | 5 |
Architect (Denver, CO)
Age: 55 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 3/20
Statement of Opinion:
- I'm unsure how much this will impact me year-by-year, but it complicates my overseas investments.
- If not for the deductions cap, I'd plan differently.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 5 | 7 |
| Year 10 | 5 | 6 |
| Year 20 | 5 | 5 |
Real Estate Developer (Seattle, WA)
Age: 40 | Gender: male
Wellbeing Before Policy: 9
Duration of Impact: 5.0 years
Commonness: 3/20
Statement of Opinion:
- This policy doesn't majorly alter business plans but personal taxes will slightly increase.
- The reduction in foreign property benefits is a concern.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 9 |
| Year 2 | 8 | 9 |
| Year 3 | 8 | 8 |
| Year 5 | 7 | 8 |
| Year 10 | 7 | 8 |
| Year 20 | 7 | 7 |
Consultant (Houston, TX)
Age: 28 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 0.0 years
Commonness: 12/20
Statement of Opinion:
- The policy might affect me in future as my income rises, but currently it's unlikely to change my financial status.
- I approve the broader investments in Medicare.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
University Professor (Boston, MA)
Age: 65 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 15.0 years
Commonness: 4/20
Statement of Opinion:
- The foreign tax deduction limits may alter plans for purchasing property overseas for retirement.
- The potential Medicare improvements could be beneficial given my health needs.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 5 |
Cost Estimates
Year 1: $5000000000 (Low: $4500000000, High: $6000000000)
Year 2: $5100000000 (Low: $4600000000, High: $6100000000)
Year 3: $5200000000 (Low: $4700000000, High: $6200000000)
Year 5: $5400000000 (Low: $4900000000, High: $6400000000)
Year 10: $5800000000 (Low: $5300000000, High: $6800000000)
Year 100: $10000000000 (Low: $9500000000, High: $11000000000)
Key Considerations
- The small percentage of affected taxpayers relative to the full taxpayer population could imply limited direct revenue increases but significant targeted impacts.
- In high-tax states, the impact may stimulate consideration of tax reforms to avoid penalizing affluent residents who contribute a substantial share of state revenue.
- The establishment of the Medicare Vision and Hearing Trust Fund might indirectly support healthcare expenditure initiatives.