Tax Plan: Highly Taxed States Could Be Hit Hardest
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This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm J.R. Whalen with Anne-Marie Fertoli in New York. One of the most hotly debated features of the Republican tax proposal is the elimination of state and local tax deductions, often referred to by the acronym SALTS. Now, it would raise billions of dollars. It would also hit residents hardest of the most highly taxed states in the country. And the degree to which those residents would be impacted is beginning to come to light. Wall Street Journal tax reporter Laura Saunders is with us to discuss. So, Laura, New York, New Jersey, and Connecticut give more to the government than any other states, and a new study shows some very significant figures.
Yes, and it looks at the idea of donor states, that is, maker states and taker states, which states give more to the federal government than they get back and which take more from the federal government than they get back.
And the numbers that came out of this study were pretty dramatic, especially for New York State.
Yeah. Well, there are about 13 states that seem to give more to the federal government than they get back.
What is SALT and why is its elimination a centerpiece of the Republican tax proposal?
And that's broadly defined. The people who do this study look at... military contracts and social security payments and federal salaries and all kinds of things, and they divvy them up state by state. It's kind of a messy process, but other economists respect the work and say that it's more right than wrong.
And that study was spotlighted by Representative Dan Donovan of New York. Do he and his colleagues have a realistic shot at having the elimination of the deduction taken out of the tax bill?
I don't think they'll be able to save the deduction for state and local income taxes, but I do think that maybe they may save a partial deduction for property taxes. That's in the House bill right now. It's not in the Senate bill, but Senator Collins is insisting on it, and I think it may happen.
And just to explain the degree to which we're talking about, states routinely give to the federal government and they get money back in federal spending. And the studies show that New York residents give, for every dollar they give to the government, they receive 81 cents back from the government. And that's a particularly low amount.
In total benefits, yes. New York, New Jersey, and Connecticut are the three biggest donor states. The other donor states are Illinois, California, Massachusetts. They tend to be the richest states, the states with the highest number of richest people.
So, Laura, repealing the state and local tax deduction would raise $110 billion, and supporters argue that it could potentially benefit businesses.
There are a couple of things. It is a very large chunk of money, and the Republicans in Congress want to put that money to better use. They think that the deduction for state and local taxes is propping up profligate state governments. That's what Representative Ryan said in a recent speech. And they think that that money would be better devoted to doing things like cutting taxes on businesses. And they may be right or whatever, but that's what they want to do.
Speaker of the House Paul Ryan said that.
Yes.
Okay. We're speaking with The Wall Street Journal's Laura Saunders about the Republican tax bill and the plight of state and local tax deductions. And you're listening to Your Money Matters from The Wall Street Journal.
Welcome back, everybody. Laura, wouldn't the elimination of the alternative minimum tax lessen the impact of losing the state and local tax deductions for some?
It might in some cases, but the study that we have was net of that effect. That's a very complicated question.
Yeah.
Which states are labeled 'donor states' and how do studies determine who gives more to the federal government?
I mean, this is not an easy process. This is like, you know, when they talk about the things you don't want to see getting made are tax legislation and sausage. I mean, they're right. And there is going to be, even though we see the Senate moving toward approval of their own version of this, there's another layer of lots of debate that has to happen before we get a final product.
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