Better known by its acronym, SALT, the deduction allows taxpayers to subtract their local and state tax bills from their income and reduce the amount they pay in federal taxes. The 2017 Tax Cuts and Jobs Act signed by former President Donald Trump limited this deduction to $ 10,000. Trump’s motives were not egalitarian – he imposed the cap to help offset the costs of the other tax cuts in the package, tax cuts that mostly went to the rich and big business. Many Democrats saw the move as a partisan financial coup aimed at the Blue States, and many now want to remove the limit.
But while Trump may have done the right thing for the wrong reason, raising the ceiling now would be doing the wrong thing, period. Here’s why.
Property taxes are a big non-federal tax bill for many American homeowners. And the biggest benefits of the deduction go to homeowners with the highest property taxes: residents of middle-class and wealthy communities who impose higher taxes to fund local priorities like better schools.
As a result, places that can afford these higher taxes end up with better schools. When the unlimited SALT deduction was in place, the federal government basically gave up on getting taxed by owners of wealthy neighborhoods so that those owners could fund these better schools.
Many Liberals are beneficiaries of this system. Many are taking out big mortgages to send their children to public schools funded by these high property taxes. New York Democratic Representative Tom Suozzi, who represents a wealthy part of Long Island, argued that Congress should repeal limits on state and local tax deductions because “we’ve built a whole system around it.”
He’s right: we’ve built our entire housing system around it. This is why we speak of “systemic” racism.
The bases of this system of inequality go deep into the soil of history. Long Island developers like Levitt & Sons have put racial pacts in their actions to prevent anyone except whites from living there. The company had a financial reason to prevent black residents from moving in: the Federal Housing Administration guaranteed loans only to areas that limited a neighborhood to white residents. The Levitt were not alone; most of the big developers on Long Island have done the same. One effect is that residents of places like Levittown were only paying to fund their own schools, which only served white students.
The inequality created by the system persists today. A major Newsday investigation showed that as late as 2019 real estate agents were not showing black buyers’ homes in white neighborhoods. White Americans, on the other hand, rarely move into neighborhoods with more than a symbolic number of colored neighbors. As a result, home values in integrated neighborhoods increase more slowly than in all-white neighborhoods and generate less property taxes to invest in schools.
This perpetuates systemic racism in two ways. First, it means that students of color are disproportionately enrolling in schools with fewer resources. And second, for decades black Americans and other Americans of color have been excluded from the real estate market and the opportunity to build generational equity and wealth. In the early 20th century, in both the North and South, federal, state and local governments allowed the seizure of property from black Americans along with racial pacts and the racist base of FHA loans that Levitt and D others used were blocking blacks. American real estate markets.
Because FHA loans were at the heart of this wealth, the federal government was the architect of the huge black-white wealth gap built on the system described by Congressman Suozzi. The wealth of Long Island villages like Manhasset, Great Neck and Glen Cove was built on this system. The system also prevented black Americans from enjoying the benefits of homeownership, such as increased wealth and well-funded schools.
Let’s be clear: at this point, preventing the return of the SALT deduction will not reduce inequalities between school districts. But by letting taxpayers keep the money they would otherwise pay to the IRS, the federal government would continue to subsidize this system that maintains wealth inequality between white and black Americans.
No evidence exists that Republicans removed the SALT deduction to reduce inequality, and the rest of their tax cut legislation increased inequality. And the Republican Party opposes efforts to increase federal spending to improve educational outcomes while complaining whenever racial inequality is mentioned.
But just because Republicans stumbled in doing the right thing doesn’t mean Democrats should reinstate the SALT deduction. Reinstating the SALT deduction would cede ground to Republicans who might speak out against Democratic hypocrisy – and rightly so.
By removing the SALT deduction, Congress dismantled a pillar of a racist system, one that obstructs racial equality. We shouldn’t be rebuilding it. Instead, let’s fund programs that will actually take action to make America fairer.