Trump Revises SALT History, Saying New Yorkers Didn’t Fight Caps

(Bloomberg) -- President Donald Trump said that New Yorkers could have thwarted a provision in his tax law that limits state and local tax deductions, one of the most controversial changes in the 2017 overhaul that contributed to Republican losses in the 2018 midterms.

“People are fleeing New York State because of high taxes and yes, even oppression of sorts,” Trump said in a tweet Monday. “They didn’t even put up a fight against SALT -- could have won.”

The $10,000 cap on state or local tax deductions, known as SALT, was one of the most fought-over provisions as Congress debated the law in 2017. The change, which mostly affects residents of high-tax Democratic states, led to a backlash from both Republicans and Democrats representing those states. The deduction was previously unlimited for some taxpayers.

“Is he living under a rock?!” Representative Nita Lowey, a New York Democrat tweeted in response. “We fought tooth and nail against the Republican elimination of the SALT deduction. If he’s OK with bringing it back, he should join me in convincing members of his own party to reverse their decision to hurt working families.”

Thirteen House Republicans ended up voting against their party’s tax bill with most citing concerns about the SALT cap. No Democrats voted for the bill. Trump has suggested he might be willing to reverse the proposal, but hasn’t backed any plan to do so. Senate Republicans remain staunchly opposed to making the SALT deduction more generous.

New York Governor Andrew Cuomo is leading a group of Democratic governors who are working to combat the limit on SALT deductions, which he calls an “economic civil war.” Democrats in the House are also working to bring a bill up for a vote that would raise the cap or repeal it entirely.

New York, New Jersey, Connecticut and Maryland also sued the Trump administration last year to invalidate the $10,000 cap, saying that it unfairly targets them. The lawsuit is still pending.

In a court filing on March 22, the states argued the Trump administration is asking the court to “turn a blind eye” to evidence that the government was trying to punish the Democratic-led states, including public remarks by former House Speaker Paul Ryan and Treasury Secretary Steven Mnuchin.

“Despite the facial neutrality of the 2017 Tax Act, Congress enacted the SALT deduction cap with an illegitimate motive -- to punish states that have elected to raise revenue through relatively high taxes and to make substantial public investments,” the states said.

In three of the states most affected -- California, New Jersey and New York -- Republicans lost 14 U.S. House seats in the 2018 midterms, accounting for about a third of the party’s overall losses.

Trump made the comment in a series of tweets about ongoing litigation between the National Rifle Association and New York state.

Migration statistics don’t show that people are leaving New York in large numbers as a result of the SALT changes, according to Moody’s Investors Service. Migration rates in the five high-tax states most affected by SALT -- California, Connecticut, Maryland, New Jersey and New York -- are generally in line with U.S. trends, according to the report the group released earlier in April.

Democrats say the SALT cap has meant higher taxes for their constituents, but only about 25 percent of taxpayers in high-income areas are getting a smaller deduction. The rest didn’t take the SALT deduction before the law because they paid the alternative minimum tax. Under the law, which scaled back the AMT greatly, they can now claim as much as $10,000 of SALT write-offs.

--With assistance from Erik Larson.

To contact the reporter on this story: Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story: Wendy Benjaminson at wbenjaminson@bloomberg.net, Gregory Mott

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