Politico: A SALT Shake up

So what happens now after this new clarification? “Under the right circumstances, some business owners are going to keep getting more back in tax cuts than they ever contributed to these tax credit programs,” said Carl Davis of the left-leaning Institute on Taxation and Economic Policy. “They’ll be stacking state tax credits and federal write-offs for business expenses on top of each other, and ultimately coming out ahead.”

How so? Davis offered a hypothetical, of two equal partners in a partnership with $1 million in profit who give $50,000 to a private school program. The partnership’s profits drop to $950,000, with that contribution written off as a regular business expense, and the two partners have incomes of $475,000. The partners then get a $50,000 state tax credit, equally divided among them, with no corresponding effect on their federal tax liability. Final result: Each partner gets both the $25,000 in state tax credits, and a $25,000 drop in their taxable federal income. Read more