Dems Set to Use Budget Gimmicks to Provide Giveaway for Wealthy Blue State Taxpayers

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Posted by Isabelle Morales on Monday, November 1st, 2021, 1:25 PM PERMALINK

"I think they've raised the bar for cynical budget gimmicks." -- Len Burman of the progressive Tax Policy Center.

In order to pass a tax giveaway for wealthy, blue state Americans, Democrats are set to use budget gimmicks in their tax-and-spend reconciliation bill.  

House Democrats have floated suspending the current $10,000 State and Local Tax (SALT) deduction limit for the next two years (2022 and 2023). The provision is set to expire after 2025, so Democrats want to “pay for” this change by extending the expiration for two more years (2026 and 2027). Because Congressional budget rules estimate the cost of policy changes over a ten-year window, Democrats would create the illusion that this provision is fully paid for.  

This would create the appearance that the bill is less costly, while many Democrats would still seek to extend the suspension in the future. Democrats are using similar methods to hide the cost of the bill when it comes to the length of time or size of the proposed welfare programs.

For example, Democrats are considering extending the fully refundable Child Tax Credit for only one year, offering universal pre-kindergarten for only one to three years, expanding the ACA credit for just one year, and more.  

Democrats from high-tax blue states are desperate to repeal the SALT cap because their constituents balk at the true tax burden from living in these states. In 2017, the Republican Tax Cuts and Jobs Act (TCJA) capped the SALT deduction at $10,000 in order to pay for much needed tax relief for working- and middle-class Americans. This was the right policy because it meant that the federal government was not subsidizing state taxes. Repealing the SALT deduction cap would shield taxpayers from bad state tax policy.

Many Democrats blatantly lie when claiming that the SALT deduction cap harms the middle class. In reality, a majority of Americans do not claim the SALT deduction, or any deduction for that matter. 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. 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.   

Many on the left have already acknowledged that the SALT cap does little or nothing to benefit the middle class. 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.   
     
  • Len Burman of the progressive Tax Policy Center said this of the Dems' chicanery: "I think they've raised the bar for cynical budget gimmicks."
       
  • 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.  

 

Democrats should explain their use of budget gimmicks to hide the true costs of their massive tax and spending bill and why they are prioritizing a costly tax break for wealthy blue state Americans. This tax break is terrible policy that would subsidize high tax states and do little or nothing to benefit the middle class.

Photo Credit: "2020 AFGE Legislative Conference" by AFGE is licensed under CC BY 2.0.

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