SALT Deduction Quiz

"If enacted, the current version of the bill would raise taxes for many of my constituents. It would do that in part by eliminating the deductibility of property taxes, income taxes and paid sales taxes." – California Republican Congressman Dana Rohrabacher expressing his opposition to the proposed tax reform package in an op-ed in the Orange County Register in November before the Tax Cuts & Jobs Act of 2017 was signed into law on December 22 that will do exactly what Rohrabacher wrote for many of his constituents.

 

Rohrabacher was joined by fellow California Republican Congressman Darrell Issa, four NJ Republican Congressmen (Frelinghuysen, Lance, LoBiondo, & Smith), & five NY Republican Congressmen (King, Zeldin, Donovan, Faso, & Stefanic) who all voted against the tax bill because of the loss of the state & local tax (SALT) deduction.  Republican Congressman Walter Jones of NC also voted against the bill because of his concern about the increase in the national debt that he thinks will follow. The foregoing Republicans, except Jones, are feeling the heat of running for reelection in 2018 in high SALT deduction states.  In fact Issa has already announced he has dropped out.

 

This post provides the information that lets us determine for ourselves whether or not the high SALT deduction states (NY, CA, NJ, CT, & Il) are the only ones affected by the Tax Cuts & Jobs Act of 2017.

 

click on graphic from one of Tennessee Congresswoman Marcia Blackburn's newsletters to enlarge

Well not quite Americans @ every income level will keep more of their paychecks, but the fact is that in 2018 there will be 143 million federal income tax payers who will receive an income tax cut & about 8.5 million who will pay higher income taxes with a few breaking even – source Steve Goldstein, D.C. Bureau Chief for Market Watch.  This works out to over 94% of federal taxpayers paying less in 2018 & just over 6% paying more – largely because of the elimination of the SALT deduction starting in 2018.  The combination of paying both federal & state income taxes is exacerbated with the elimination of the SALT deduction & is the topic of the subject quiz below.  See graphic below from the Tax Policy Center for the breakdown, by income, of who gets tax cuts & who gets tax increases from the new tax bill.

 

 

Since the subject quiz below is a form of multiple choice, responders should explain how they get their answer. 

I will post all correct answers or alternatively will send the solution privately to anyone who requests it if no one figures it out.

 

SALT Deduction Quiz

 

Individuals in the highest federal income tax bracket will see their rate drop from 39.6% in 2017 to 37% in 2018.  Middle class tax payers, five federal income tax brackets below the highest, in the 15% tax bracket in 2017, will see their federal rate drop to 12% in 2018.  In 2017 the deduction of state income tax was allowed on federal income tax returns – for the purpose of this quiz assume that taxpayers in both the highest & middle class federal tax brackets previously mentioned took the deduction of state income tax in 2017 & that their incomes are identical in both years.  Considering only the elimination of the deduction of state income tax in 2018 – for people, married filing jointly, in both the top federal bracket & middle class federal bracket previously indicated, please determine in which of the seven states listed below that the residents will receive a federal income tax increase in nominal dollars in 2018.  The percentages shown next to the seven listed states below are the state income tax rates that apply to both the highest income earners & the middle class earners in the respective states in both 2017 & 2018.

 

Iowa – 8.98%, Idaho – 7.4%, South Carolina – 7.0%, Delaware – 6.6%, Illinois – 4.95%, Pennsylvania – 3.07%, Texas – no income tax.