Return Of Country Club Dues Deduction Is More Defensible Than SALT

Forbes

4 days ago

Winged Foot Golf Club in Mamaroneck, New York. (Photo by)
While the Tax Cuts and Jobs Act (TCJA) permanently cut the corporate tax rate, a move that effectively ended corporate inversions as a going concern, the bill's personal income tax rate cuts are set to expire at the end of 2025. Congress and the White House are now working to sign a bill later this summer that would prevent end-of-year income tax hikes.
Following the House of Representatives' passage last week of a tax bill that would prevent a rise in all income tax rates at the end of the year, the action now moves to the Senate. One aspect of the House tax bill that many are calling on the Senate to drop from its version is the increase in the state and local tax (SALT) deduction from $10,000 to $40,000, with a phaseout of that benefit at $500,000.
In the lead up to House passage of the tax bill, President Donald Trump warned congressional Republicans that raising the SALT deduction cap would 'benefit Democrat governors' who, Trump added, 'are destroying our country.' But the SALT boost was reportedly a necessity of passage in the House, as there are enough Republican lawmakers from California and New York who were willing to kill the bill unless it included a SALT deduction hike.
'New York has the highest tax burden of any state in the country,' Congressman Mike Lawler (R-N.Y.), one of the leading voices calling for a higher SALT deduction, posted on X. 'We need to raise the cap on SALT to deliver relief for middle-class families across New York.'
'While politicians in states like New York and California point to the SALT deduction as a middle class benefit, the numbers tell a far different story,' contends Jonathan Williams, president and chief economist at the American Legislative Exchange Council. 'The SALT deduction is a mechanism for socializing the costs of big government policies in a few states across the rest of the nation.'
In a May 25 post on X, investor and author David Bahnsen explained the challenges House Republicans have created for themselves given the way they increased the SALT deduction cap, which Bahnsen describes as 'the dumbest risk-reward politically imaginable':
'There are practically no tax filers under 150k income who itemize, and even less with a higher, permanent standard deduction coming. And there are some, but very few between 200 and 400k. The VAST majority of people this hit were well over 500k (and with the lower marginal brackets and AMT relief of the 2017 bill it was higher than that before it resulted in a negative impact).'
Bahnsen goes on to warn that, due to the way the House tax bill is structured 'they basically are INCREASING taxes for virtually anyone who was begging them to lift the SALT cap, they are infuriating people under 200k income who see them bending over backwards (or pretending to) for higher earners, and the only real benefit will come to a very small piece of W2 employees who earn between 200 and 400 and happen to itemize.'
It's well documented how the benefits of a larger SALT deduction go predominantly to the highest income households. Critics of the SALT deduction, however, also note that it subsidizes the most profligate states and cities in the country at the expense of taxpayers who live in more responsibly governed jurisdictions. That's why some conservatives even argue that it would be more defensible for congressional Republicans to reinstate the income tax deduction for country club dues than it would be to increase the SALT deduction.
Until 1994, taxpayers could deduct a percentage of country club membership dues payments if the taxpayer's use of the club was mostly for business purposes. The tax bill that President Bill Clinton signed into law on August 10, 1993 repealed that deduction. The 1993 tax bill also ended deductibility of airline club costs.
'Airline clubs at airports, which often contain meeting rooms and other office facilities, have been popular places to conduct business on the road, as have networks of clubs,' Reuters reported in November 1993. 'A spokesman for American Airlines, which charges $150 annually for use of its 41 Admiral's Clubs around the world, said it recently saw a sudden increase in people asking about buying lifetime memberships in the hope of writing off the dues once and for all in the current tax year.'
Resurrection of the country club dues deduction would, like the SALT deduction, primarily benefit upper-income filers. Yet reinstatement of the country club dues deduction wouldn't provide an incentive for state and local lawmakers to tax and spend more than they otherwise would like the SALT deduction does.
'A lot of business meetings happen at country clubs and airline private lounges,' says Ryan Ellis, president of the Center for a Free Economy and an IRS-enrolled agent in charge of a tax preparation firm, 'There's a much better argument for the tax deductibility of these dues (especially for business owners) in red states around the country than there is to justify a really high property tax rate on some McMansion in Westchester County, New York.'
'If Congress is going to revisit tax deductions, restoring SALT is the worst option—it props up fiscally reckless states and shifts the burden to responsible taxpayers,' said Vance Ginn, staff economist at Americans for Tax Reform and president of Ginn Economic Consulting. 'At least a deduction for business-related club dues doesn't incentivize bloated government.'
'But the real reform we need is sustainable budgeting that spends less today while limiting growth to what families can afford—population growth plus inflation,' added Ginn, who previously worked at the White House Office of Management and Budget. 'Washington should stop rewarding bad fiscal behavior and start promoting pro-growth rules that let people prosper.'
'The political incentives are clear enough — elected officials from high tax generally, blue states want to shield their constituents from the consequences of their state's policies without doing the hard work of reducing spending or reining in tax burdens at the state level,' Williams added. 'If residents of New York or California want expensive government services, of course, that's their right. But they should pay for it themselves, directly and transparently. They should not expect working families in Texas or Tennessee or Indiana to subsidize their choices through higher SALT in the federal tax code.'
There is a vocal contingent on Capitol Hill calling for a larger SALT deduction. No politician or pundit from either party, meanwhile, is advocating for the reinstatement of the country club dues deduction. Yet, if forced to choose between the reinstatement of the country club membership dues deduction or a more generous SALT deduction, many conservatives will concede there is a stronger case to be made for the country club deduction. That says less about the merits of the dues deduction, however, than it does about the adverse effects of the SALT deduction, for which some Republicans on the Hill have gone to the mat.