Yesterday, Senate Democrats reaffirmed their support for tax breaks for the wealthiest Americans in blue states like California, New York, and New Jersey. They voted against Sen. Chuck Grassley’s (R-Iowa) amendment to prevent the lifting of the SALT deduction cap implemented by the Tax Cuts and Jobs Act of 2017.
At a time when Democrats are insistent about the idea that the wealthy do not pay enough in taxes, they continue to support this six-figure tax break for wealthy Americans in blue states.
Democrats from high-tax states are desperate to repeal the SALT deduction cap because their constituents balk at the true tax burden from living in these states. Repealing the SALT deduction cap would shield taxpayers from bad state tax policy. It is also a costly policy proposal that would disproportionately benefit the wealthy and do little, or nothing to benefit the middle class.
Repealing the SALT deduction cap disproportionately benefits the wealthy, as many on the left have noted. For instance:
- The New York Times described the SALT deduction as “The Tax Cut for the Rich That Democrats Love.”
- The Center for American Progress has stated that repeal of the SALT cap “should not be a top priority” as it would “overwhelmingly benefit the wealthy, not the middle class.”
- Referring to repealing the SALT deduction, Rep. Alexandria Ocasio-Cortez said, “I think it’s just a giveaway to the rich… and I think it’s a gift to billionaires.”
- Senator Bernie Sanders (I-Vt.) recently criticized efforts to repeal the SALT cap, arguing that it “sends a terrible, terrible message… You can’t be on the side of the wealthy and the powerful if you’re gonna really fight for working families.”
- The left-of-center Tax Policy Center found that the top 1 percent of households would receive 56 percent of the benefit of repealing the SALT cap, and the top 5 percent of households would receive over 80 percent of the benefit. The bottom 80 percent of households would receive just 4 percent.
- The Brookings Institution explained that almost all (96 percent) of the benefits of SALT cap repeal would go to the top quintile, 57 percent would benefit the top one percent (a cut of $33,100), and 25 percent would benefit the top 0.1 percent (for an average tax cut of nearly $145,000). Whether or not this is a tax cut for the wealthy is not up for debate—the evidence is clear.
Repealing the SALT cap would be a costly addition to this spending package. Fully repealing the SALT deduction cap would cost $80 billion per year, or $400 billion in total, as the cap sunsets in 2026 along with several other tax provisions. This $400 billion proposal would be a massive portion of the $3.5 trillion spending package if included. Because Democrats are attempting to fund this bill through tax hikes, the repeal of the SALT deduction cap could result in Democrats raising taxes elsewhere, including taxes directly or indirectly on low- and middle-income Americans.
Democrats falsely claim that when the unlimited SALT Cap was repealed, middle class Americans in blue states like New Jersey and New York saw a massive tax hike and were hit with double taxation. They claimed that these blue state residents were now paying federal taxes on income that was already subject to state and local taxes.
In reality, a majority of Americans do not claim the SALT deduction, or any deduction. Instead, they claim the standard deduction. In 2018, 133 million American taxpayers (or 87% of filers) claimed the standard deduction. These taxpayers deduct zero state and local taxes, so they have no protection against double taxation.
In addition, most middle-income taxpayers in blue state saw a significant tax cut. According to IRS Statistics of Income Data, the average taxpayer in both New York State and New Jersey earning between $50,000 and $200,000 saw a tax cut between 2017 and 2018.
Taxpayers in both states with AGI of between $75,000 and $99,999 saw an average federal income tax cut of 10 percent, while taxpayers between $100,000 and $199,999 in AGI saw an average tax cut of between 6 and 7 percent. While this does not necessarily prove that every taxpayer in this income bracket saw a tax cut, it does mean the majority of taxpayers in blue states did not see a tax hike, as Democrats claim.
This tax break is terrible policy that would subsidize high tax states and do little or nothing to benefit the middle class, a fact that many on the left must realize. Nonetheless, they still wish to keep their options open to a massive tax cut for the wealthy.
It is especially egregious that this is even a consideration, as Democrats plan to raise the corporate tax, double the capital gains tax, and create a Second Death tax – all policies which would disproportionately hurt workers, retirees, and small businesses.