Democrats defend a tax blessing for rich householders

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Democrats defend a tax blessing for wealthy homeowners

“Everything the Trump administration has done must be wrong.” This view has become a guiding principle for many Washington Democrats as they work to repeal a wide range of Trump-era laws, regulatory facilities, and other decisions.

The principle even seems to apply to a limit that former President Donald Trump’s 2017 tax legislation provides for a tax deduction for wealthy homeowners.

Believe it or not, a provision in this legislation increased taxes on the wealthy by limiting the amount of state and local taxes, often referred to as SALT, to $ 10,000, which they could deduct from their federal income taxes. This includes income taxes, sales taxes, and local property taxes. It is the last of these – local taxes levied on real estate – that has helped particularly wealthy homeowners in the past.

Why did Trump decide to fill this gap?

In fact, when he was developing his tax cut laws, many proponents of the bill felt the loss of revenue was too great. As a result, he had to find some counter-tax increases to make the overall loss of income a little smaller.

Where could he raise taxes in such a way that his followers are not alienated?

Closing the loopholes available to oil and gas producers that would be welcomed by environmentalists was off the table: such measures would harm the rich in many states who voted for it.

After going through the long list of tax loopholes, he settled on the SALT deduction as the tax foundation says the $ 10,000 cap on the SALT deduction will bring in $ 673 billion over the next 10 years.

Imposing the cap also allowed him to punish the states that voted against him. You see, blue states tend to have higher taxes than red states. By reducing the SALT deduction, he was able to pass it on to the states that did not support it. Republicans in red low-tax countries were less affected by the cap.

Trump is transactional and vengeful, but he’s smart. By reducing the SALT deduction, he presented himself as a populist who had closed a void for the rich. He also forced the Liberal Democrats to defend this loophole, drawing attention to the fact that their blue states are high-tax countries (without mentioning that they provide more services to their less fortunate residents).

Democrats from New York, New Jersey and Connecticut are now calling for the full SALT deduction to be restored, showing that their talk of funding government programs with taxes on the rich has its limits. They believe in taxing the rich – just not their rich friends and supporters.

Seventeen House Democrats from New York are so committed to protecting this void for their wealthy constituents that they are threatening to sabotage President Joe Biden’s infrastructure plan if the SALT withdrawal limits are not lifted. This would require a $ 673 billion cut in infrastructure over the next 10 years to meet the revenue from removing the $ 10,000 cap.

Senate majority leader Charles E. Schumer from New York also wants to lift the cap.

New York MP Alexandria Ocasio-Cortez does not support the repeal. Who would have thought that Ocasio-Cortez and Trump are on the same page in anything? She realizes the repeal is a giveaway for the rich.

Proponents of the SALT deduction will argue that this is far from being a sop for the rich but encourages home ownership among the middle classes. According to the Tax Policy Center, 96% of middle-income households – those earning between $ 52,000 and $ 93,000 a year – would get no tax break at all if they lifted the cap.

It would also not help tenants who tend to have lower incomes and who do not pay property taxes. These low- and middle-income citizens pay more taxes because higher-income homeowners pay less.

The fact is that the SALT deduction only helps the richest. According to the tax foundation, all but about 14% of taxpayers receive the standard deduction, which means 86% of taxpayers do not benefit from the SALT deduction. And deductions are inherently most beneficial to wealthy people in the highest tax brackets. A $ 1,000 deduction is worth $ 100 for low earners who pay 10% of their income in taxes, but $ 350 for a person in the 35% tax bracket.

As a result, households earning $ 1 million or more per year would receive half of the total benefit from lifting the $ 10,000 cap on state and local tax withholding, according to the Tax Policy Center. These millionaires would profit an average of $ 48,000.

“Today’s structures of sin involve repeated tax cuts for the richest people,” explains Pope Francis.

Democrats should be ashamed to support such a structure of sin. Trump and Ocasio-Cortez are right. Limiting the SALT deduction was a good idea and should remain part of the tax law. If Congress is looking to promote home ownership, there are better options than a program that is most beneficial to millionaires.

(Thomas Reese is the author of “The Politics of Taxation” and was a lobbyist for tax reform in the late 1970s.)