I & I Editorial BoardDemocrats will never tire of calling the One Big Beautiful Bill Act a “giveaway” to the rich. But by their own definition, this bill was a huge giveaway to blue states and blue cities.
That’s the finding from a Heritage Foundation report released last week.
The study, which used Heritage’s own individual income tax model, looked not only at how much the bill saved taxpayers by preventing President Trump’s 2017 tax cuts from expiring (an average of $1,904 per taxpayer), but the impact of new tax cuts, including the expansion of the state and local tax deduction.
What it found was that the states getting the biggest benefit from the new tax cuts in the bill are all deep blue: New Jersey, Maryland, Massachusetts, Minnesota, and New Hampshire. Regionally, it’s the same picture: those living in blue cities are the big beneficiaries.
Much of the big blue bonus stems from the expansion of the so-called SALT deduction. The bill hiked the amount of state and local taxes that taxpayers can deduct on their federal forms to $40,000, up from $10,000 under Trump’s 2017 tax reforms. This expansion disproportionately benefits high-tax states.
But Heritage’s research also shows that, had Republicans let the 2017 tax cuts expire, the biggest losers would have been in states such as North Dakota, Alaska, Wyoming, and places like Nashville, Raleigh, and Dallas.
When you combine the two, everyone is a winner. “In every state and in 96% of the areas within states,” the study found, “the average overall per-filer tax savings per year from extending the TCJA and the new tax cuts was more than $1,800.”
But still, didn’t all the benefits go to the rich?
Nope.
Middle- and lower-income groups benefited the most from the new tax cuts included in the bill.
“Tax deductions for tips, overtime, and seniors included explicit income phaseouts to ensure that high earners would not benefit. The expanded standard deduction is of little benefit to high-income taxpayers who itemize. The increase in the child tax credit reduces taxes for middle-income parents, but not for high-income parents, because it is subject to an income-based phaseout.”
Ironically, the one OBBBA provision that benefited the rich was the one that Democrats fought hardest to include: the increase in the SALT deduction.
“The expanded SALT cap is the only major new tax cut in the OBBBA that leans toward higher-income taxpayers, though even the increased SALT cap includes an income-based phase-down between $500,000 and $600,000 of adjusted gross income,” the report found.
Just don’t expect Democrats ever to admit any of this. When it comes to taxes, they will never let reality interfere with a talking point.
–Written by the I&I Editorial Board
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New Hampshire does not have a state income or sales tax. So a SALT deduction gives no benefit to them.