Richard Rubin is out with a new piece in the Wall Street Journal that highlights just how successful our SALT Parity efforts have been. The article centers on an upcoming Tax Policy Center analysis which finds these reforms save businesses $15-20 billion each year, double what the Journal estimated last year.

As longtime readers know, the 2017 Tax Cuts and Jobs Act (TCJA) imposed a $10,000 cap on the amount of state and local tax (SALT) deductions taxpayers can claim on their federal return. While C corporations were exempted from the cap, most pass-through businesses owners were subjected to it, putting them at a significant disadvantage.

To address this imbalance, S-CORP and the Main Street Employers Coalition have successfully pushed for state-level reforms that restore the full deduction for pass-through entities. Under our SALT Parity approach, pass-throughs can elect to pay their SALT at the entity level (PTET), thus restoring the deduction at the federal level while maintaining revenue neutrality for the state. It’s a win-win for the businesses and the states, which is why 36 of 41 eligible states now have SALT Parity legislation on the books.

Rubin’s piece appeared in the WSJ print edition under the title, “Cap on Tax Deductions Has a Business Loophole.” The WSJ should run a correction. Our SALT Parity efforts are not taking advantage of a loophole, but rather the law as it was intended.

During the tax reform debate, it became clear that the Senate version of the TCJA applied to taxes paid by individuals but not taxes paid by businesses. C corporations were not subject to the cap. Nor were taxes paid by pass-through entities, including property taxes and income taxes paid directly by the entity (as they are here in the District of Columbia). Those taxes would continue to be deductible as a business expense, as they always had been.

This reality is why our SALT Parity laws have been explicitly blessed by the Treasury Department – they are consistent with the TCJA’s intent and the underlying tax code. The fact that federal receipts are lower than initial estimates is neither relevant nor that unusual – the Joint Committee on Taxation revises its estimates all the time.  Consider the Inflation Reduction Act’s green energy provisions, whose costs are expected to come in up to four times what was originally estimated.

Nonetheless, the WSJ piece makes clear not everyone is excited about reducing business taxes or leveling out the treatment of C corporations and pass-throughs:

As a result, the cap—part of the 2017 tax overhaul—is generating 80% to 85% of its intended revenue, according to the Tax Policy Center, which is a joint venture of the Urban Institute and Brookings Institution. That means the cap doesn’t offset other tax cuts as much as expected, complicating lawmakers’ plans to extend the bulk of the law beyond its scheduled expiration at the end of 2025.

We prefer to think of the effort as reducing taxes on the business sector hardest hit by COVID and the resulting shutdowns, but to each their own. Meanwhile, the SALT Parity bashing continues – here’s Len Burman of the Tax Policy Center:

If you have a SALT cap, it doesn’t make any sense to say that the richest workers are basically exempt from it, but everybody else is subject to it.

That’s a lot to unpack. For starters, the SALT Parity bills don’t apply to workers, they apply to business owners.  And the richest “owners” own C corporations, whose income is exempt from the SALT cap, hence the parity in our SALT Parity work. We missed the part where the Tax Policy Center scored how much revenue the federal government is losing by failing to cap the deductibility of SALT payments by C corporations.

The class warfare aspect to these comments is pure nonsense too. The cap itself is structured so lower income individuals can continue to deduct their taxes up to $10,000. In a state with a flat 5 percent rate, that translates into $100,000 of taxable income, which means that any effort to ease the cap would only benefit business owners making more than that amount.

Meanwhile, pass-through business owners who take the standard deduction also can make the election and get both the standard deduction and the SALT deduction. As a result, the SALT Parity bills are a big benefit to lower- and middle-income business owners.

Finally, here’s Daniel Hemel, a New York University professor, with a recycled line about who stands to benefit from the reforms:

President Biden promised to enforce the tax laws as they apply to high-income individuals, yet his administration has allowed hedge-fund managers, law-firm partners and other predominantly high-income pass-through owners to skirt the $10,000 SALT cap.

Again, no mention of the corresponding C corporation treatment, whose owners not only get the full SALT deduction but also pay a much lower, 21-percent tax rate. As long as they keep the money in the company, they can keep their taxes low indefinitely and then use charitable donations and other devices to avoid paying additional taxes, a la Warren Buffett.

SALT Parity, Section 199A, and other provisions help ensure that otherwise similar companies are not treated differently under the tax code simply because of how they are structured. Without them, we would see a return of the pre-1986 days, where everyone used the C corporation structure to shelter income. We’d also see a continuation of economic consolidation within public corporations, as family businesses would face a Hobson’s choice of either selling the business or converting to the C structure that favors public companies. Is that what the TPC wants?

The S Corporation Association is proud of the work it has done to advance these reforms. Critics may not like it, but the bottom line is that SALT Parity helps level the playing field, and puts money back in the hands of businesses, their workers, and their communities.