One of the key pillars of Donald Trump’s tax reform bill was placing a cap on deductions of $10,000 for state and local taxes (SALT). Naturally, Democrats from high-tax states were livid. Rich people were actually penalized for living in places like New York and California.
Since the tax reform bill’s passage in 2017, Democrats have been agitating for its repeal. Now that Joe Biden is in the White House and Democrats run Capitol Hill, the SALT deduction could very well be restored, costing the Treasury tens of billions of dollars and giving wealthy homeowners a big break.
But isn’t it the Democrats’ plan to soak the rich? The infrastructure bill contains several tax provisions aimed at reducing “income inequality.” So why grant the rich this favor?
It turns out that the “favor” actually goes to blue-state governors who would be free to jack taxes even higher since the wealthy would be paying far less in federal taxes.
Repealing the cap is popular with many Democrats and leaving repeal out of the infrastructure bill might actually lose support in the party. Several House Democrats from New York and New Jersey say they wouldn’t back any other tax changes unless the SALT cap is repealed.
“I’m sympathetic to their position,” House Speaker Nancy Pelosi said during a briefing with reporters, later adding: “Hopefully, we can get it into the bill.”
Pelosi called the cap “mean-spirited” and “a political action on the part of the Republicans.”
California is among the states impacted by the SALT cap, along with New York, New Jersey, and other places with high property taxes and expensive real estate.
Republicans immediately attacked the idea of eliminating the cap.
“Restoring the SALT deduction would once again force low- and middle-income people to subsidize wealthy individuals in high-tax states and municipalities,” Sen. Pat Toomey, a Pennsylvania Republican, said.
The cap may be “mean-spirited,” but Pelosi is caught between a president who doesn’t want to revive the deduction and members who insist it be included.
A commonly held view at the senior level of the Biden administration is that capping SALT — which Trump did to save money and punish his blue-state enemies — was actually good policy. …
Senior Biden officials have soured on SALT deductions for two main reasons: It would undercut their working-class message and would cost them a fortune.
Reinstating SALT would reduce revenues by an estimated $70 billion to $80 billion a year, roughly half the annual amount that Biden has proposed to raise by hiking corporate rates.
The majority of taxpayers still receive a tax break for writing off their state and local taxes. Capping the deduction was good policy at the time and good policy now. The problem is that Democrats don’t want to have to face the consequences of their profligate spending. It’s not as easy to continually raise taxes to pay for their ever-expanding government when taxpayers begin to feel the pinch.
Democratic members in high-tax states like New York, New Jersey, Maryland, and California are under increasing pressure from their wealthy homeowners to get rid of the cap. They’re also hearing it from members of their state legislatures and local governments. This may be one of the last chances they have to shoehorn the SALT deduction repeal into legislation before they lose their majority.
It might not blow up the whole bill. But it’s one more indication that this bill is in trouble, not only with Republicans but with Democrats, as well.
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