Daniel Hemel on the Treasury’s Final SALT Regulations

Short- And Long-Term Implications Of Treasury’s Final SALT Regulations

The Treasury Department’s final regulations on contributions in exchange for state and local tax credits came as no surprise to anyone who has watched this story unfold. The regulations, released yesterday, provide that a payment to a government entity or a charitable organization will not be treated as a deductible charitable contribution if the donor receives a state or local tax credit exceeding 15 percent of the donation’s fair market value. The final rule largely tracks the draft version released in August 2018 and vetted in a months-long notice-and-comment process. If there is any hard news story to emerge from yesterday’s release, it’s that Treasury (thankfully) did not cave to pressure from private-school voucher advocates to create a carve-out for programs that preexisted the December 2017 tax law’s $10,000 cap on state and local tax deductions.

It’s sometimes hard to see the big picture when one is too involved in an issue, and perhaps that applies to me here. I should say—in the interest of full disclosure—that I have advised lawmakers in New York and California about state responses to the $10,000 SALT cap, and I take some parental pride in one particular New York tax law change that was unaffected by yesterday’s regulations. To lay all my cards on the table, I’ll add that I think states like New York and California are acting entirely appropriately in trying to preserve their residents’ ability to pay for public goods and services with tax-deductible dollars. Public officials have a responsibility to look out for their constituents’ interests, and the $10,000 SALT cap—which will make it appreciably harder for states like New York and California to raise revenue from high-income residents to pay for schools, hospitals, and other public services—is no doubt damaging to the interests of New Yorkers and Californians, whatever one thinks of the provision from a federal tax policy perspective.

This is not the time or place to relitigate the SALT cap issue though.  (I have a lot more to say about the subject in a forthcoming Tax Law Review article—the draft of which is available here.) I will try instead, at Paul’s prompting, to highlight a few of the immediate and long-term implications of yesterday’s announcement, doing my best not to let my own views color my analysis (though conscious that, of course, one’s own views always color one’s analysis).

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Tax policy