Tax Changes Could Rob Job Creator Peter to Pay Billionaire Paul

You know the saying "Robbing Peter to Pay Paul."

This is a version of a phrase made popular by the English writer and poet Rudyard Kipling back in 1919 to criticize the idea of the redistribution of wealth.

Although President Trump showed us in 2017 how great his policies could be for the economy, there’s a danger that changes to the reauthorization of his 2017 Tax Cuts and Jobs Act (TCJA) might end up doing exactly that: Rob Peter to Pay Paul.

Some in Congress want to cap or eliminate the corporate state and local tax (C-SALT) deductions existing today to pay for an increase in the personal state and local deduction of taxes (SALT).

The problem is this is a classic case of a sneaky tax hike on job creating corporations to benefit wealthy taxpayers in the high tax states of New York and California.

Why Republicans controlling the crafting of a tax bill would want to reward these high tax blue states residents while hiking corporate taxes on job creators at a time when the economy is staring down the barrel of a possible recession is mind blowing.

While some sectors of the economy are struggling, a tax hike on already beleaguered small businesses would be a terrible mistake.

Current tax law allows pass-through entities and C corporations to deduct state and local taxes. Eliminating or capping that deduction would hike taxes by about 6% while targeting the business community for higher taxation.

The Tax Foundation argued in a paper, "Congressional Policy Makers Should Treat Carefully When Weighing New Corporate SALT Deduction Limits" that "House Republicans are considering new limits on corporate state and local tax (C-SALT) deductions as an offset option for a broader reconciliation bill extending 2017 tax cuts and other spending changes."

Hiking corporate taxes is a target because it would raise revenue for the federal government over 10 years by between $223 and $423 billion depending on the extent of the reduction of deductions.

The goal is to use these projected revenues to expand the SALT deduction for personal income taxes for wealthy individuals in high tax states.

The impact of limiting C-SALT would be a slowed economy, businesses operating in multiple states being targeted, and a more confusing corporate tax structure.

Enacted via 2017 tax cuts, there limit on personal SALT deductions is currently $10,000 limit, that is to say residents cannot deduct more than $10,000 in non-federal levies paid, including income and property taxes.

A high personal SALT deduction provides motivation for tax and spend states like New York, and cities like New York City, to keep taxes high.

The difference between personal SALT deductions and the corporate ones are that, according to the Tax Foundation, "Multistate corporations have their income apportioned to states through 'factor apportionment,' which can involve the location of payroll, property, and sales.

"Today, however, most states use single sales factor apportionment, which only takes sales into account."

If you sell in a state, that state taxes on all company income nationwide, even if the company is in a low-tax state.

Wealthy individuals living in high tax states don’t have the same challenge. It appears the $10,000 individual SALT cap didn’t hurt double-dipping blue state taxpayers as much as we have been told it did.

The individual rate cut, doubling of the standard deduction, the Alternative Minimum Tax’s (AMT) de facto repeal, and the doubling of the child tax credit made up for a lot of what was lost in SALT.

President Donald Trump’s tax cuts made sense in 2017, and they make sense now.

There is no reason to hike taxes in a piece of legislation marketed as cutting taxes.

It makes no sense to target job creating corporations to collect more money to pay for other tax cutting measures. Robbing job creators to pay off wealthy donors in blue states stinks of cronyism and should be avoided.

Jared Whitley is a longtime politico who has worked in the US Senate, White House, and defense industry. He has an MBA from Hult business school in Dubai, and in 2024 he won the Top of the Rockies best columnist award. Read Jared Whitley's Reports — More Here.