Democrats campaigned in 2020 on raising taxes on the rich, and that is something that a clear majority of Americans want. Why then are they now proposing to raise the state and local tax deduction? The current deduction covers most workers. The new higher deduction primarily benefits the rich! This is a bad idea!
Here's what the editorial board of The Washington Post says about the new proposal by House Democrats:
House Democrats released Wednesday a new draft of their big social spending and climate bill — tucked inside of which was a massive new payoff to wealthy people. The Democrats’ bill is supposed to make the nation fairer and more competitive. This cynical, wasteful policy should have no place in it.
Republicans four years ago capped the amount of state and local taxes (SALT) Americans may deduct on their federal taxes, hitting high-income people in high-tax states such as New Jersey with substantially bigger tax bills. This was one of the few responsible measures in the GOP’s 2017 tax-cut bill, raising revenue almost exclusively from wealthy people. Now a handful of Democrats from these states have vowed to oppose the party’s major social spending bill if it fails to include SALT cap “relief.”
This has put Democratic leaders in a bind. Refuse the demands for SALT cap repeal, and they would likely fail to muster their narrow majorities to pass anything on a range of pressing problems, such as climate change. But giving in on SALT would make a mockery of Democrats’ pledge to make the tax code more progressive and raise revenue for important social programs.
In the House, they’ve given in. Under the House plan, the amount of state and local taxes people can deduct would rise from $10,000 to $72,500. This would give high-income people a $23,000 tax break. The Tax Foundation, a think tank, estimates that 70 percent of the tax change would flow to the people making $250,000 or more. The Committee for a Responsible Federal Budget reckons that the plan would cost $300 billion, which would make it the third-most costly item in the bill — far more than it would devote to major anti-poverty programs. Meanwhile, Sen. Robert Menendez (D-N.J.) and Sen. Bernie Sanders (I-Vt.) unveiled Wednesday an alternative plan that would keep the SALT cap but exempt people who make roughly $400,000 or less per year. Neither plan is about middle-class tax relief. Anyone who owes $72,500 in state and local taxes is not middle-income. Neither is anyone making $400,000 annually.
Well-heeled Americans have prospered while the climate has warmed, health care remains out of reach for many and national finances have deteriorated. That’s why it made sense when the Democrats promised to increase the estate tax that wealthy people have to pay and to reverse the worst of the Republicans’ 2017 tax cuts by raising corporate tax rates and income tax rates on top earners. Negotiating among themselves, they’ve already given up on all of those sensible ideas. To now grant a new tax break to the rich is beyond the pale.
