Their Reasons:
Byrnes: These types of entity-level taxes are completely legal. Even the IRS has blessed their use. The SALT cap itself unfairly targets Americans who live in high-tax states by creating a cap that isn't even often relevant to taxpayers who live in lower tax states. That's patently unfair, and it makes absolute sense that higher tax states should offer a workaround to avoid having these taxpayers flee to low-tax states.
Bloink: We all know that these pass-through entity taxes are a way to avoid the $10,000 SALT cap limitation. That SALT cap was implemented as a way to offset the tax cuts offered to major corporations and wealthy Americans in the 2017 tax overhaul. Regardless of the IRS' statements, Congress clearly did not intend to allow for a way to "work around" this SALT cap limitation — or they wouldn't have created it in the first place.
Byrnes: The SALT cap itself creates a perverse incentive for the wealthiest Americans to relocate to lower tax states — leaving only middle-income taxpayers in high-tax states to shoulder the burden of this unfair revenue-raiser. This is the precise reason that higher tax states are offering these taxes in the first place — to protect small business owners who need tax relief to be able to stay in their original jurisdiction.
Bloink: We have to remember that the SALT cap limitation is one of the few revenue-producing provisions that actually allowed the 2017 tax overhaul to pass in the way it did in the first place. Allowing states to simply give wealthy taxpayers a loophole goes against Congress' intent and really should never have been permitted in the first place.
Byrnes: If we're looking to minimize the impact on middle-class Americans, we should have a version of the SALT cap that draws the line based on income. Without a limitation like that, we need to look to alternatives to allow taxpayers to continue paying a reasonable tax rate. These state-level entity taxes give our small business owners the protection they need and deserve.
Bloink: These workaround taxes give wealthy Americans yet another way to avoid paying their fair share of taxes. We need to be pushing back against any attempts by state and local governments to create new tax loopholes for wealthy Americans.
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