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Analysis: For Mass. High-Earners, Tax Law's Cuts Will More Than Make Up For New SALT Cap

For Massachusetts' highest-income households, tax cuts in the recent Republican overhaul will more than make up for the plan's new cap on state and local tax deductions, according to an analysis out Thursday.

Among its provisions, the law signed by President Trump late last year established a $10,000 limit on the deductibility of those state and local taxes (SALT) -- a cap that's drawn much attention, especially in states with relatively high taxes and housing costs.

In a statement this week, Speaker Robert DeLeo said the Massachusetts House is "exploring options to mitigate negative repercussions" stemming from the Republican tax law, with a focus on the SALT limit.

But the new analysis — from the Massachusetts Budget and Policy Center, a group that mostly studies issues affecting low- and moderate-income people — finds that for households in the state earning more than $1 million a year, "the average tax cuts from other federal changes in the law are more than twice the average size of the impact from the loss of SALT deductibility."

The SALT cap would increase the tax burden on these wealthy households by an average of $71,200, Mass. Budget says, compared with an average $167,000 cut as a result of the other tax changes. Here's the group's chart:

(Courtesy of the Massachusetts Budget and Policy Center)
(Courtesy of the Massachusetts Budget and Policy Center)

The quick brief didn't examine the average effect on households with an income below that $1 million threshold.

The report came hours after a separate analysis, from the business-backed Massachusetts Taxpayers Foundation, found that the state's residents in 2015 deducted from their income $19 billion in state and local taxes, and that about $7.5 billion in deductions will no longer be available, with the new federal law in place.

"The analysis," State House News Service reported, "shows about a third of taxpayers will be affected, with the largest impacts felt among the wealthiest."

"For a lot of people in Massachusetts, they are going to feel the effect of the cap," the foundation's president, Eileen McAnneny, told State House News.

The foundation warned in its report that the SALT limit "could make Massachusetts a less attractive place to work and live."

There's another factor in the mix: Provided it's not thwarted by a legal challenge, a constitutional amendment on the 2018 state ballot would add a 4 percent surtax on income over $1 million. (The state's personal income tax is currently 5.1 percent.)

Because of the new federal law, the president of New Jersey's Senate told the New York Times he's "pressed the pause button" on a proposed new tax on millionaires.

Amy Pitter, president of the Massachusetts Society of Certified Public Accountants, told State House News that she thinks the paired measures — a SALT cap and an income tax surcharge — could cause wealthy residents to consider whether to remain in Massachusetts.

But Mass. Budget has pushed back on that notion, finding that few millionaires move states due to taxes.

Its president, Noah Berger, added this in a statement about the current interplay between federal and state tax measures:

If the people of Massachusetts decide that investing in education and transportation is more important than large tax cuts for our highest-income households, we could adjust our state tax system so that people with incomes over a million dollars pay more in state taxes while they are paying less in Federal taxes. The Fair Share amendment, which adds a 4% tax on income over a million dollars, would have that effect.

The state's highest court is set to hear oral arguments on Feb. 5 on the constitutionality of the income surtax initiative.

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Benjamin Swasey Twitter Digital Manager
Ben is WBUR's digital manager. He occasionally reports on economic and transportation policy, climate and social issues, and politics.

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