Oh, the irony. Republicans who pushed through the 2017 Trump-era tax cuts that overwhelmingly benefited the wealthy have launched an attack on President Biden's Build Back Better plan by claiming it caters to the rich.
The problem for Democrats is that, in attempting to reverse one of former President Trump's changes that was targeted to hurt residents of blue states such as California, the recently passed House version of Biden's program does indeed offer a whopping tax break for millionaires.
Senate Democrats need to correct that. As they take their turn reviewing Biden's plan, which passed the House with a huge price tag over the next decade, they need to fix the proposed rollback on federal tax treatment of state and local taxes.
For Democrats, this is not only a matter of good policy but also a matter of good politics. The last thing they should do as they enter the 2022 election season is provide fodder for the claim that they're now the party of tax cuts for the wealthy.
At issue is the federal deduction for state and local taxes, known by the acronym SALT. Before Trump's changes, the amount paid for state income taxes and local property taxes could be deducted from the income used to calculate federal income taxes.
There was good reason for originally creating the SALT deduction - to avoid double-taxation. When people pay their state and local taxes, the thinking went, that money is no longer discretionary income and should not also be subject to federal taxes.
But the deduction had turned into a massive federal subsidy to state and local governments. Every time state or local government raised taxes by $100, someone in a 35% federal tax bracket paid $35 less to the federal government.
The Trump tax cuts limited the SALT deduction to $10,000 annually. The change provided the single-largest federal government revenue increase to help cover the cost of the 2017 GOP tax bill.
The $10,000 limit struck a big blow at taxpayers with sizable incomes or high-value homes in states with high tax rates - mostly blue states. California, and the Bay Area in particular, was greatly affected.
Now Democrats want to lift the limit. The problem is they're going about it all wrong. The House version of Biden's plan would raise the limit from $10,000 annually to $80,000, which would create a major windfall for the wealthy.
The Senate is considering a different and slightly more tempered approach, limiting the repeal of the SALT cap to those making less than $500,000. But that's still an exceptionally regressive proposal that would primarily benefit the well-off.
To put it in perspective, a household making $500,000 per year would receive 32 times as large a tax cut from SALT repeal over five years as a typical family of four would receive from the child tax care expansion (which in most cases the bill limits to one year), according to the nonpartisan Committee for a Responsible Federal Budget.
The SALT cap repeal would also be one of the costliest parts of Build Back Better, according to the group's analysis. It would be larger than spending on universal pre-K, long-term care, expansions of the Affordable Care Act, and higher education and workforce investments.
In California, where housing costs and associated property taxes are some of the highest in the nation, many middle-class property owners were hit hard by Trump's $10,000 cap on SALT deductions. The cap needs to be raised, but any adjustment needs to be tempered and carefully targeted so it doesn't become a boon for the wealthy.
Neither the House version nor the Senate alternative under consideration meet that balance.
Tribune Content Agency