Y’all recall when I told you that the SALT limitation imposed by the GOP would not stand for long. And, no, I didn’t say that meant that the limitation would be repealed.
What I said is that the high tax states would look for a way to let their rich citizens skirt the law. Which is exactly what 27 of our states have done. Affording folks who own pass-through businesses a means to save some $ 10 billion in taxes. Of course, that also means that the Federal government is losing out on $ 10 billion in collections.
Which business folks gain from this work-around? Lawyers, hedge funds, car dealerships, manufacturers, and other S corporation owners.
Yes, that means that the average Joe (or Nancy) who earns their living via wages (as reported on W-2 forms) doesn’t garner the benefit.
Because the states have adjusted the way businesses pay taxes- in effect, letting, the businesses pay the property taxes and personal income taxes that would normally be imposed on the individuals who own the business.
Oh, and despite your assumptions, this is not just the residents from the high tax states like California, New York, New Jersey (among others) that the GOP hoped to penalize with their SALT limitations that garner such benefits. Nope- these workarounds exist for business owners in Utah, Georgia, South Carolina, and Kansas, among others, as you can see from the above map.
Basically, these workarounds don’t hurt the state at all- since they are collecting their full complement of state and local taxes. It’s the Federal government that is taking the hit, since the business deducts these payments, lowering the income that the business owners receive- and therefore are taxed less by the Feds. (That is above and beyond the deduction of greater than $10K in state and local taxes!)
What really happens is that the state creates elective taxes; these are paid by the taxpayer’s pass-through business, which lowers the net income the pass-through reports to the Federal government. And, the taxpayer is not bound by the $ 10,000 SALT limitation, since his (or her) business fully paid the SALT to the state. (Basically, transferring the personal obligation to one’s pass-through business.)
Sorry for those of you who earn your income from wages. You still are subject to the SALT limitation.
Ah, yes, income inequality is the norm in the USA.
So the hard working employees end of paying.
Well, let’s say the wage earners end up paying. Other folks could be hard working, as well.