Taxes

Dems' Plan To 'Tax the Rich' Might Include a Huge Tax Break for the Rich

Repealing the cap on the SALT deduction would overwhelmingly benefit the wealthiest households in America.

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(NDZ/starmaxinc.com/Newscom)

Before Democrats in Congress can pass a massive spending plan that comes with huge tax increases aimed largely at wealthier Americans, they might have to approve a huge tax break that would almost exclusively benefit the wealthiest Americans.

One of the major stumbling blocks for Democrats as they try to push President Joe Biden's $3.5 trillion reconciliation bill through Congress is the state and local tax (SALT) deduction, which was capped at $10,000 as part of the 2017 tax reforms. Lifting that cap, or repealing it entirely, has been a major priority for members of Congress who represent wealthy districts in high-tax states, and some Democrats are threatening to withhold their support for Biden's Build Back Better plan unless it addresses the so-called "SALT cap."

The rhetoric being used to justify repealing the SALT cap is some of the most disingenuous that you'll hear from lawmakers debating tax policy—and that's saying something.

"No SALT, no deal," Rep. Tom Suozzi (D–N.Y) said in a statement earlier this month. "I simply cannot stand by while the hardworking people across all of New York are hurting because of the SALT cap."

"These are folks that are struggling to get by," is how Rep. Josh Gottheimer (D–N.J.) described his constituents during an interview with CNN's Jake Tapper earlier this week. Families making $200,000 annually—more than three times the median household income in the United States, by the way—are apparently struggling to make ends meet, or at least that's what he told Tapper.

Even Rep. Alexandria Ocasio-Cortez (D–N.Y.), who recently made headlines for wearing a dress with "tax the rich" printed on it to the Met Gala—an event which, ironically, serves as a way for wealthy people to avoid taxes—has signaled a willingness to consider the SALT cap repeal. (In fairness, she's also correctly called a full repeal of the SALT cap "a gift to billionaires.")

While Democratic lawmakers are divided, there is little debate among left-leaning wonks about who actually benefits from the repeal of the SALT cap.

"There is no state where this is a primarily middle-class issue," the Institute for Taxation and Economic Policy, a left-of-center think tank, declared in February.

Richard V. Reeves and Christopher Pulliam, a senior fellow and research analyst, respectively, at the Brookings Institution, calculated last year that 96 percent of the benefits of a SALT cap repeal would go to the top 20 percent of earners, with the top 1 percent getting 57 percent of the benefits. "In isolation, this change would be more skewed to the rich than" the 2017 tax reform bill that Democrats have spent years decrying as an unfair giveaway to the wealthiest Americans, the pair wrote in an op-ed for The New York Times.

Meanwhile, the top 5 percent of households would reap 80 percent of the benefits, and the bottom 80 percent will get just 4 percent of the overall tax breaks, according to an analysis by the Center on Budget and Policy Priorities, a progressive think tank.

To put it another way, the tax break would amount to an average of $250 for American households earning between $50,000 and $75,000 annually, according to the Tax Policy Center, a left-of-center think tank. Households earning over $1 million will get a tax break of $47,000 on average.

To be sure, it's fine to advocate for letting wealthy Americans keep a larger share of their income. They are almost certainly going to make better decisions about how to spend that money than the federal government will. If that's what some Democrats believe would be in the best interests of the country, then they should say so—please!—and they should work to incorporate that same philosophy into their other tax policies.

But, of course, the SALT cap repeal isn't about principles. It's about making sure wealthy people in high-tax states—the types of people who just so happen to donate to lots of political causes, natch—get a big tax break. All the talk about the SALT cap repeal helping struggling middle-class families is just a ham-handed, obviously false attempt to marry this policy to the Democrats' broader policy goals.

In a letter to President Joe Biden earlier this year, seven Democratic governors urged a repeal of the SALT cap because "middle-class Americans are struggling under this federal tax burden."

That might very well be true, but it's worth noting that the seven governors who signed the letter oversee states—California, Connecticut, Hawaii, Illinois, New Jersey, New York, and Oregon—with above-average state tax burdens. If middle-class families in those places are struggling, those governors could probably do something more effective than writing letters to encourage the adoption of a policy that mostly doesn't benefit middle-class families.

And if members of Congress like Suozzi and Gottheimer think their constituents are struggling to get by, here's an idea: don't support a bill that raises taxes.