Hot new idea for Dems' reconciliation bill: A huge tax cut for the very rich

AP Photo/Jose Luis Magana

They said if Republicans voted for Trump in 2020, America would end up with an administration devoted to lining the pockets of rich people.

And they were right!

You’ll recall that when Republicans passed the Trump tax cuts in 2017, part of that deal was a cap on how much in state and local taxes (SALT) taxpayers can deduct from their federal taxes. The SALT deduction is a giveaway to blue-state residents since it eases the burden of living in a high-tax jurisdiction. If your state and city hits you hard in the wallet, no problem: Most of that money would have gone to Uncle Sam anyway in the form of federal taxes. SALT keeps your overall tax burden fairly constant.

Which sucks for red-staters, whose state and local governments tax them less. Why should people who choose to live in New York or New Jersey or California get a break from the overbearing Democratic tax-and-spend regimes they keep electing year after year? Kill the SALT deduction and make the libs feel the pain of the type of local government they’ve chosen.

The Trump tax cuts didn’t kill the deduction, though. Instead they capped it at $10,000, a high enough bar that only the richest taxpayers are pinched by the cap. If you pay less than $10K in SALT every year, you get to deduct all of those taxes from your federal tax. But if you’re a very high earner, tough luck. You’re limited to deducting $10K, which adds up to a lot of extra revenue for the federal government.

Or at least it did, until the most progressive administration since LBJ, working on a deal to pass the most progressive social legislation since the Great Society, apparently decided to … unravel the SALT deduction cap and let the super-rich deduct the full amount of state and local taxes from their federal tax bill. That’s the word this afternoon from Capitol Hill, that the emerging reconciliation bill — which is already desperate for revenue to pay for its welfare programs — will include a repeal of the cap that will hemorrhage revenue instead. W-w-w-what?

Congrats to very rich liberals on their windfall, I guess. Now they can afford that fourth car they’ve had their eye on.

Let me stress again, this isn’t a tax cut for the “well off.” This is a tax cut that will exclusively benefit blue-staters who are making serious bank.

“The Tax Policy Center estimates that more than half the benefit of repeal would go to the top 1 percent of households, those making $824,000 or more,” Forbes noted recently of repealing the cap. “On average, they’d get a tax cut of about $35,000 in 2022. The top 0.1 percent, who make at least $1.6 million, would get an average tax cut of about $154,000.” Not only that, at last check the deal emerging on the Hill would make repeal retroactive for a year. Rich people in blue states would get money back that they paid into the federal coffers this past spring.

What strange impulse would lead a Democratic administration to undo a law passed by the Trump administration to squeeze the very rich? Simple. They’re desperate for votes on reconciliation and repealing the SALT deduction cap was the asking price for a number of House Dems representing high-tax blue states:

The Speaker of the House hails from a high-tax blue state as well. There are lots of hyper-wealthy Democratic donors in California, New York, and New Jersey who’ll be grateful to her and to the centrist House Dems who went to bat for them by trying to get the SALT cap thrown out after four years. Meanwhile, Pelosi can now bank those centrist votes in her quest for 218 on reconciliation. Build Back Better just got a little closer to passage.

Or did it? At what point does the pared-down reconciliation bill offend progressive sensibilities so much that lefties decide to throw in the towel and walk away? “The bipartisan Committee for a Responsible Federal Budget found in an analysis released Friday that repealing the SALT cap would more than offset the planned tax hikes on the rich,” CNN pointed out in a story yesterday. “More than 96% of the benefits from a SALT cap repeal would go to the highest-income 20% of households, according to a 2018 analysis from the Tax Policy Center.” If spending in the package is being gutted by Manchin and Sinema and revenue mechanisms are being gutted by Gottheimer and his allies to help the rich, what’s left of this deal for leftists?

Can they even make the math work anymore?

Ed suggested an intriguing possibility:

House Dems have probably already concluded that the House version of the reconciliation bill is a dead end legislatively because they just can’t get on the same page as Manchin and Sinema. In that case, the “deal” that’s emerging might be nothing more than a vehicle to virtue-signal to their different constituencies, with no expectation that anything will actually get past the Senate. It’s now a messaging bill, in other words, not something that’s expected to make it to Biden’s desk. If rich donors in New York and California are peeved that the SALT cap remains in place, House Dems will try to make them happy by announcing that they’re planning to repeal it in a bill which they know is DOA in the other chamber. The donors will be grateful that they gave it the ol’ college try and keep the checks coming. Probably?

Update: Yeah, this is good and dead in the Senate. And Manchin and Sinema might not be the ones who kill it.

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