A Call for Reasonable Tax Reform
The state of Georgia made history yesterday after the Associated Press declared that both Raphael Warnock and John Ossoff won their respective US Senate races. As a result, Democrats will become the majority party with their 50 seats in the US Senate, since Vice President-Elect Kamala Harris will be the tiebreaker of any votes.With Democrats sweeping the White House and both chambers of Congress, there are talks about pushing comprehensive change with fiscal and social policy with a new unfettered Biden administration.
Regarding tax policy, it is highly probable that a Biden administration will now pivot towards increasing federal corporate and personal tax rates in order to reduce the national deficit and fund certain high priority government programs. PMG Intrinsic, believes that as part of the Biden’s administration’s posture towards societal equity, it should actually implement a tax cut that is popular with Democrat voters and possibly gain new Republican admirers; the full reinstatement of the deduction of state and local taxes.
Before the passage of the Tax Cuts and Jobs Act of 2017, taxpayers were largely allowed to deduct their state and local taxes (“SALT”). Before 2017, a California resident subject to the state’s notoriously high state income taxes could at least seek some succor from the balm of being able to claim SALT as an itemized deduction. For example, a client reported over $150,000 in SALT in 2016, which resulted in a corresponding deduction. However, after passage of the Tax Cuts and Jobs Act of 2017, the SALT deduction became limited to $10,000. That same client, lost a tax deduction of $140,000. Taxpayers in states with substantial SALT such as California, New York, and Illinois gnashed their teeth with increased tax bills; taxpayers in states with low SALT such as Florida and Texas merely shrugged since they largely did not rely on the deduction.
PMG Intrinsic advocates for full reinstatement of the SALT deduction. We believe that it would generate bipartisan support. While states with large SALT tend to be considered “Blue States,” Republicans still reside in California. There are conservative voters in Blue States. PMG Intrinsic notes our advocacy is based only on the SALT deduction. We are not advocating on the wisdom or lack of efficiency of any other large tax policies; such as tax credits for green energy or the increase of corporate tax rates. However, unlike those more controversial policies, PMG Intrinsic does believe in the myriad political and financial benefits of reinstating the SALT deduction. If President-Elect Biden insists on increased taxes, why not also provide a large tax deduction for citizens who already live-in states with substantial local taxes? The benefit is not just an equitable tax deduction, it would also be an olive-branch for passage of a comprehensive tax deduction on a bipartisan basis; something, we all believe is necessary in these divisive times.