While President BidenJoe BidenRealClearPolitics reporter says Freedom Caucus shows how much the GOP has changed under Trump’s Iowa governor, suggests immigrants are partially responsible for rising COVID-19 cases, Biden officials are pledging to face the challenges of the Face cybersecurity directly has called for higher taxes for wealthy Americans and corporations to fund a $ 3.5 trillion budget deal, some Democrats in Congress are undermining that agenda by demanding that the deal lower taxes for their wealthy constituents. These lawmakers argue that the $ 10,000 limit on state and local tax (SALT) deduction created by the GOP’s 2017 Tax Act undermines their states’ ability to generate revenue through progressive tax policies.
But in reality, any attempt to weaken or remove the cap would be just a pointless giveaway for the rich. The Democrats should oppose this regressive tax cut, which would divert critical resources from necessary public investment.
“No SALT, no deal,” said Reps. Josh GottheimerJoshua (Josh) Gottheimer: After the uprising, the legislature gives more for personal safety. Six findings: What the FEC reports tell us about the mid-term elections Despite a promising start, democrats face huge hurdles MORE (DN.J.), Bill PascrellWilliam (Bill) James PascrellJimmy and Rosalynn Carter Celebrate 75th Anniversary, Long-Married Presidential Couple Jan. 6 Inquiry Set To Spill Over By 2022 Without Complaints From Democrats Zombie Tax Punishes Farmers To Fill DC Coffers MORE (DN.J.) and Tom Suozzi (DN.Y.) who are just some of the lawmakers calling on Congress to lift or weaken the SALT cap in their Reconciliation Act, the legislative tool that enables Democrats to Passing their budget agreement without any Republican votes. These lawmakers claim the cap is deliberately making it difficult for their heavily democratic state governments to tax the rich at high rates without pushing those taxpayers into lower-tax areas.
Prior to 2018, taxpayers who itemized deductions from their federal income taxes were able to deduct from their taxable income every dollar they paid in property taxes, plus state and local income or sales taxes. Republican tax law has capped this amount at $ 10,000 per household through 2025. Opponents of the cap want to lift it entirely, but have also proposed increasing it or only lifting it for households with incomes below a threshold.
It seems they are winning. Chairman of the Senate Budget Committee Bernie SandersBernie SandersWomen’s March supports Nina Turner in first election approval GOP sees debt ceiling as leverage against Biden Democrats to prepare for Biden’s spending plan MORE (I-Vt.) Previously said that the lifting of the SALT cap “sends a terrible, terrible message when Republicans tell us this is a tax break for the rich”. But he set aside $ 120 billion in a recent draft reconciliation plan for unspecified changes to the SALT deduction, an amount greater than what the bipartisan road and bridge infrastructure framework provides.
Fortunately, other Democrats across the ideological spectrum have spoken out against weakening the SALT cap as it would give away much-needed tax revenue to the rich. This group includes moderates such as Sen. Michael Bennet (D-Colo.) And Reps. Stephanie Murphy (D-Fla.) And Abigail SpanbergerAbigail Davis Spanberger Democrat Unveils Bill Allowing Only House Members To Speakers Moderate Democrats Call For A 9/11 Style Panel To Investigate The Origin Of COVID-19 Former Bob McDonnell Employee Launches A Challenge Against Spanberger in Virginia MORE (D-Va.), As well as some in the left wing of the party, including Reps. Alexandria Ocasio-CortezAlexandria Ocasio-CortezWomen’s March Aids Nina Turner in First-ever Electoral Advocacy Pressured Grassley to run as Democrats target Iowa JD Vance Targets Culture Wars and MORE childless politicians (DN.Y.), Joaquin CastroJoaquin CastroHouse Democrats Reinstate State Department Diversity Bill Julian Castro Joins NBC, MSNBC as Political Analyst Exclusive: Democrat García Will Not Support Reconciliation Without Immigration MORE (D-Texas) and Mark PocanMark William PocanOvernight Defense: 6B Pentagon Spending Advances | The candidate for a naval secretary slides through the hearing | hearing Hurdles pile up in battle to fund the security of the Capitol The House Panel is advancing the Pentagon’s 6B law to vote across the party line (D-Wis.).
These skeptical Democrats are right. Even if lawmakers lifted the SALT cap only for households with incomes below $ 500,000, less than 3 percent of the benefit would go to the 60 percent of lowest-income Americans. Only households making enough money to pay more than $ 10,000 in state and local taxes would benefit from a softening of the cap. Wealthy households are also the most likely to report their deductions, as only 9 percent of taxable households with incomes less than $ 200,000 did in 2018. And like all deductions, SALT works by reducing taxable income, which greatly lowers the tax burden on individuals tax bracket more than someone in a lower tax bracket.
Contrary to what opponents of the cap are saying, it doesn’t prevent state and local governments from increasing revenue. These governments have already received $ 525 billion from the US bailout, which far exceeded their current budget deficits. But even if they needed more income, the SALT cap doesn’t stop them from raising taxes for the rich.
High-tax countries, including New York, New Jersey, Connecticut, and Washington, have raised or maintained taxes on their wealthiest residents since the cap was introduced. This suggests that the effective federal tax rates for states are not too high to generate revenue. And there’s no evidence that the cap is driving out wealthier taxpayers: In 2018, 32 percent of net growth in U.S. households with incomes above $ 1 million was in the five states that tax them the highest, compared to 27 percent in 2017.
Rather than diverting funds from other progressive priorities to fund this tax gift to the rich, federal lawmakers should do three things. First, they should address legitimate criticism of the SALT cap by softening the marriage penalty it creates. According to the current regulations, married couples have the same upper limit as single taxpayers, ie they can only claim half the allowance per person. Raising the upper limit for married couples and neutralizing the change deficit by lowering the upper limit for singles would give people in high-tax countries a certain amount of tax relief without sacrificing federal income. Next, legislators should make the improved SALT upper limit permanent. Finally, they should limit the value of any individual deductions a taxpayer can claim (as former President Obama suggested) to prevent rich people from getting rid of their income tax liability by claiming other tax breaks like the SALT deduction.
Federal lawmakers could also support state and local governments directly by creating a fund that would automatically help them cover lost revenue during a downturn, as experts at the Tax Policy Center have suggested. Maintaining the SALT cap and using its revenues to provide direct aid to state and local governments would prevent regressive budget cuts during the downturn rather than lowering taxes for the rich.
The Reconciliation Package offers Democrats a rare and precious opportunity to invest in education, infrastructure, scientific research, and a stronger social safety net – all things that make American society more equitable and dynamic. You shouldn’t let a regressive tax break pull hundreds of billions of dollars off these important public investments.
Brendan McDermott is a financial policy analyst at the Progressive Policy Institute’s Center for Funding America’s Future.