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OpEdNews Op Eds    H4'ed 6/15/19

The Overwhelming Survival-Response to the TCJA of the 2017 "SALT CAP" has been Change

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Why is it important that change has been the overwhelming survival response to the Tax Cut and Jobs Act of 2017 (TCJA) "SALT CAP"?

Because Connecticut, Maryland, New Jersey, and New York (Plaintiff States) , in New York, et al. v. Mnuchin, et al., 1:18-cv-06427-JPO (S.D. N.Y.) claim that the cap was enacted with the expectation that the harmful effects would compel them to change their policies and the Trump administration's defense against is that these states aren't required to do anything in response to the federal tax law. They could, the administration argued, keep their spending priorities the same or change them as they see fit.

(Image by Stephen M. R. Covey)   Details   DMCA

If the states most affected by the "SALT CAP" do nothing, their leaders will cease to be highly trusted leaders. In his best-seller, The Speed of Trust, Stephen M. R. Covey included 'Confront Reality' among his thirteen behaviors of High Trust Leaders. According to Covey, the opposite of 'Confront Reality' is to ignore it, it's to act as though it doesn't exist. It's burying your head in the sand, thinking that maybe it will go away or that it's not really there after all.

Political officeholders that have chosen change as their response to the "SALT CAP" are heeding the wisdom that W. Edwards Deming expresses in the following (tongue in cheek) quote: "It is not necessary to change. Survival is not mandatory."

The initial change was Rep. Tom MacArthur's proposal to cap the State and Local Tax (SALT) deduction at $10,000 instead of total elimination of the deduction. This was incorporated into the TCJA of 2017 as the "SALT CAP". After this change, MacArthur apparently felt confident that he could vote for the TCJA without jeopardizing his house seat, but he was defeated in the 2018 mid-term election.

Another change was that twelve Republican representatives that voted with their party during the 115th Congress the vast majority of the time, voted against the TCJA of 2017. Of these twelve, only three were able to maintain their seats and those all are cosponsoring bipartisan SALT CAP solution bills in the 116th Congress.

The IRS changed the 2018 withholding tables in response to the TCJA, taking full advantage to maximize take-home pays. Unfortunately, the vast majority of the of the 10.9 million filers (over 18 million potential 2020 voters) adversely affected by the "SALT CAP" were faced with underpayments or smaller refunds and were forced to respond by changing their 2019 household budgets, accordingly.

Governors of several states most affected by the "SALT CAP" have proposed workarounds, but on June 11, 2019 the IRS issued final regulations substantially limiting the deductibility of charitable donations link to tax credits.

Since written briefs were filed in the aforementioned case the following relevant items have appeared in the media:

Low-Tax States Are Adding Jobs 80% Faster Than High-Tax States Due To Trump's Tax Cut & SALT Cap. In this May 24, 2019 Forbes article Chuck DeVore wrote:" But since President Trump signed the Tax Cuts and Jobs Act of 2017 into law, the federal SALT deduction cap has had the economic effect of changing tax law in all 50 states simultaneously, making for a rare macroeconomic field test."

Manhattan real estate sales fall for sixth straight quarter - longest losing streak in 30 years This CNBC piece highlights that real estate had its worst first quarter since the financial crisis and that total sales fell 3 percent in the first quarter, and marked the sixth straight quarter of declines.

New York City rents just hit a new high, report finds This June 4, 2019 New York Post article reports the median rent for New York City one-bedroom apartments hit $2,980 in May, the highest in at least three years.

The latter two items are consistent with the "SALT CAP" being disadvantageous to residential real estate ownership and advantageous to landlords in high SALT states, like Trump and Kushner.

The Plaintiff States in, New York, et al. v. Mnuchin, et al., 1:18-cv-06427-JPO (S.D. N.Y.) will have their day in court with oral arguments, before Judge Oetken on Tuesday, June 18, 2019.
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A seasoned financial professional, currently providing subject matter expertise on a variety of regulatory topics, including the Dodd-Frank Act, the Foreign Account Tax Compliance Act (FATCA) and overall compliance monitoring. He has previously held (more...)
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