The closer we get to a real tax bill, the louder the opposition to a possible B-SALT cap becomes.  That’s a good thing, because the threat is real.

First, an explainer – lots of folks are talking about C-SALT (state and local taxes paid by corporations) deductions these days, but that’s a misnomer. There is no separate corporate policy regarding SALT deductions. If Congress caps C-SALT, it caps deductions for S corporations and other pass-throughs too.  It’s the same deduction.  So forget about C-SALT and talk about B-SALT instead, because we are all in the same boat here.

On the B-SALT front then, lots of activity. Main Street Employer Coalition members have had literally thousands of members hit the hill in recent weeks, talking up 199A and raising concerns about a possible B-SALT cap. The Texas Oil and Gas Association also followed suit, writing yesterday:

Make no mistake: limiting the B-SALT deduction would punish the very companies that helped build the strongest economy in American history and make achieving President Trump’s Energy Dominance Agenda far more difficult. It would weaken our competitiveness, reduce investment, and ultimately harm the workers and families who depend on a thriving energy sector…Furthermore, economic analysis shows that eliminating the B-SALT deduction would shrink GDP and eliminate over 21,000 full-time equivalent jobs. That’s not progress. That’s a step backward.

Meanwhile, Main Street ally Doug Holtz-Eakin might not have gotten the memo about B-SALT, but he clearly understands the threat the policy poses to the business community.  As he noted in a recent post:

CSALT has no relation to SALT. Firms deduct the costs of generating income – wages, rents, capital costs, etc. – and CSALT is the recognition of those costs. Fully deducting those taxes is necessary to correctly measure net income, and thus necessary to correctly tax firms. Capping CSALT is professional malpractice.

Put differently, capping CSALT is simply a tax on the most successful U.S. companies and would threaten jobs, investment, and higher real wages. The debate over the desirability of raising the corporate income tax rate has been settled – it should remain untouched at 21 percent. Capping CSALT is just a corporate rate hike in disguise – roughly the equivalent of raising the rate to 23 percent.

Doug is correct about the marginal rate effect of capping SALT for C corporations. The hit to pass-throughs would be worse, as their top rates are higher so the loss of the deduction would cost them more.

Finally, our friends at the Family Business Coalition just sent this letter up to the Hill, including this paragraph opposing a cap:

FBC fully supports your efforts to permanently extend TCJA and in addition urges you against raising taxes on any US businesses in the process. As an example, recent proposals to limit businesses’ ability to deduct state and local taxes from their federal returns would be a step in the wrong direction with respect to simplifying the tax code and providing tax relief. While the majority of our family businesses are “pass-through” businesses like S-Corps, LLCs, and sole proprietors, we also jointly represent millions of privately owned C-Corporations. Privately owned corporations that do not issue shares to the public far outnumber public companies. Any proposal that rolls back their ability to deduct state and local would dampen the economic benefits of renewing TCJA. The Tax Foundation recently warned that limiting C-SALT will reduce economic output and would effectively amount to a corporate tax rate increase for many private businesses.

So the business community is waking to the threat of capping B-SALT. The point of the tax bill is to preserve the TCJA’s tax relief for families and family-owned businesses. As with the horrible 40-percent rate idea, capping B-SALT would move us in the wrong direction.