Cantor: Long Island’s 40-Year Fight to Keep the SALT Deduction

In Brief:

• Long Island has battled SALT deduction threats since Reagan’s 1985 proposal
• Economist Martin Cantor warns today’s proposals echo past harm to NY’s middle class
• Loss of SALT increases federal tax burden and reduces home values
• New York still sends more to Washington than it receives, worsening the imbalance
• Pending legislation may cap SALT deduction between $10K and $40K

In politics, some fights just won’t go away. Such is the current fight in the Congress to retain the federal deduction for state and local taxes now known as SALT. It has been 40 years since President Reagan tried to eliminate the federal tax deduction for state and local taxes, and 40 years since then Assemblyman Patrick Halpin, chair of the New York State Assembly Subcommittee on the Long Island economy and I, as special advisor to the subcommittee, went to the Washington D.C. hearing room of the Congressional Ways and Means Committee to oppose Reagan’s proposal to eliminate SALT.  Looking at today’s fight over SALT, as Yogi Berra said: “It’s Déjà vu all over again”

President Reagan, attempting to simplify the federal tax code, argued that the deduction of state and local taxes, which had been part of the federal income tax code since its inception in 1913, benefited higher income taxpayers in high-tax and high spending states, including New York. Sound familiar? Today’s arguments haven’t changed.

However, back in July of 1985, the argument that we made to the Ways and Means Committee was that elimination of SALT would increase the federal tax burden of Long Islanders and would be felt more by Long Island’s middle class and not the wealthy as Reagan offered. Furthermore, by eliminating SALT, home values would decrease, once again hurting Long Island’s middle class where a home is the most significant investment many would make during their lifetime. The middle class was the backbone of the Long Island economy in 1985 and is still the case in 2025.

Reagan further believed that that the SALT deduction was a subsidy by taxpayers in low-tax states to taxpayers in high tax states and felt it was “truly taxation without representation.” Halpin reminded the congressional committee back in his 1985 testimony that the elimination of SALT would cost the New York State economy over $6.5 billion including $1 billion of that loss from the Long Island economy. Lost on the committee, but not in the testimony, was the fact that the high-tax states such as New York—and high-tax regions such as Long Island—subsidized taxpayers in low-tax states by sending more of our tax dollars to Washington than we get back in federal government spending. This includes social security benefits, aid to state and local governments, federal employees, grants and government procurement contracts. These are serious balance of payment differences leading to significant unintended consequences.

Balance of payments can significantly influence a state’s economy, and the balance of payment difference between New York State and the federal government has been continuous and persistent.

A Dowling College study of these balance of payment differences I prepared in 2008 found that New York State was ranked third-worst of all states with a negative balance of payment deficit of $$23.8 billion, eighth-worst with a negative per capita balance of payment deficit of $1,234, and at $8,737 New York State was fifth in per capita tax dollars sent to Washington.

The legislation now being considered in the Senate would limit the SALT deduction to $40,000. But there is uncertainty with pushback from senators to lower the limit to $10,000.

The certainty is that the balance of payment deficit has continued, and New York and Long Island remain the federal government’s cash cow.

Martin Cantor is director of the Long Island Center for Socio-Economic Policy and former Suffolk County economic development commissioner. He can be reached at [email protected].