SALT deduction ‘wasteful and unnecessary,’ according to Baker Institute finance experts

EXPERT ALERT

Jeff Falk
713-348-6775
jfalk@rice.edu

Avery Ruxer Franklin
713-348-6327
averyrf@rice.edu

SALT deduction ‘wasteful and unnecessary,’ according to Baker Institute finance experts
Tax deduction expansion proposal benefits only top earners

HOUSTON – (April 9, 2020) – The proposed $10,000 cap repeal for state and local tax (SALT) deductions as part of a new round of economic stimulus measures to dampen the fallout from the COVID-19 pandemic would almost exclusively benefit the highest income households, according to experts at Rice University’s Baker Institute for Public Policy.

Jorge Barro and John Diamond, fellows in public finance at the Baker Institute, are available to discuss the topic with news media.

The Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000. Proponents of the deduction argue that state and local governments provide important public services, such as education and health care, and that these services should be supported through the federal tax code, according to Barro and Diamond in a recent Baker Institute blog post.

Barro and Diamond’s research finds that a repeal would only benefit top earners. “According to these estimates, taxpayers making below $40,000 would not benefit under this proposal,” they wrote. “Taxpayers making between $40,000 and $100,000 would receive an average benefit of around $10-$30, and less than 6% of these households would (see) any benefit. At the opposite end of the income distribution, taxpayers making over $1 million would receive an average payment of $43,690, and more than 92% of high earners would receive a benefit.”

Barro and Diamond argue that relief efforts should be focused on minimizing the severity of the impending recession and helping those most in need.

“Rather than providing benefits to the highest earners, policymakers should provide funding based on who needs it the most and where it would make the biggest difference: the unemployed and struggling businesses,” they wrote. “With a variety of effective fiscal policy solutions available, an expansion of the SALT deduction seems wasteful and unnecessary.”

Barro’s area of research involves the development of dynamic macroeconomic models for fiscal policy evaluation. Prior to joining the Baker Institute, he was an economist at the University of Pennsylvania’s Wharton Public Policy Initiative, where he led the development of its dynamic macroeconomic model and helped launch the nonpartisan Penn Wharton Budget Model.

Diamond is the Edward A. and Hermena Hancock Kelly Fellow in Public Finance and director of the Center for Public Finance at the Baker Institute, an adjunct professor of economics at Rice and the CEO of Tax Policy Advisers LLC. His research interests are federal tax and expenditure policy, state and local public finance, and the construction and simulation of computable general equilibrium models.

To schedule an interview with Barro or Diamond or for more information, contact Avery Franklin, media relations specialist at Rice, at averyrf@rice.edu or 713-348-6327.

-30-

Related materials:

Barro bio: https://www.bakerinstitute.org/experts/jorge-barro/

Diamond bio: https://www.bakerinstitute.org/experts/john-w-diamond/

Baker Institute blog post: http://blog.bakerinstitute.org/2020/04/08/hold-the-salt-please/

Follow the Baker Institute via Twitter @BakerInstitute.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Founded in 1993, Rice University’s Baker Institute ranks as the No. 2 university-affiliated think tank in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blog.bakerinstitute.org.