Speaker of the House Nancy Pelosi and Senate Majority Leader Chuck Schumer Drew Angerer / Getty Images

  • In the Build Back Better plan, Congress included a proposal to increase the cap on state and local tax deductions.

  • It is basically a tax cut for the wealthiest Americans.

  • Congress must completely eliminate this deduction; taxpayers’ money should not subsidize the rich.

  • Gary Haglund is Senior Fiscal Policy Analyst at Americans for Prosperity.

  • This is an opinion column. The thoughts expressed are those of the author.

President Joe Biden, Speaker of the House Nancy Pelosi and Senate Majority Leader Chuck Schumer have repeatedly stated that the so-called Build Back Better Act will be a historic investment in low and middle income families paid for by raising taxes for the rich. Yet although initially excluded from Biden’s Build Back Better framework, Democrats are seeking to include changes to the National and Local Tax Deduction Cap (SALT) in the final reconciliation bill. Tuesday, reports said lawmakers are on the verge of reaching a deal to retroactively repeal the $ 10,000 SALT cap established in 2017 as part of tax reform. The next day, House Democrats came up with a proposal that included changes to retroactively increase the SALT cap to $ 72,500 until 2031. Both options would be regressive and a tax cut for the rich.

Removing the cap on SALT deductions would cost around $ 90 billion per year, while raising the cap from $ 10,000 to $ 72,500 would cost more than $ 50 billion per year until 2025, when the cap expires. under current law. Both proposals disproportionately benefit high-income households while providing little or no benefits to the lower and middle classes. This would make our tax code less fair and lead to tax disparities based solely on where you live.

Experts across the ideological spectrum, including the Tax Policy Center and Americans for Tax Reform, agree that repealing or increasing the SALT cap is regressive and poorly targeted, yet lawmakers have brazenly argued that repealing the SALT cap is regressive and poorly targeted. cap would be a boon to the middle class. It couldn’t be further from the truth.

Only the rich will benefit from the repeal of the SALT cap

Let’s see who really benefits from the SALT cap removal. According to the Brookings Institution, the richest 20% of earners would receive 96% of benefits, with the richest 0.1% receiving an average annual tax cut of $ 154,000. On the other hand, the lowest paid 60% would see only a meager 0.8% of the benefit.

Even if Congress decided to increase the cap rather than repeal it, the change would still be very regressive. The Tax Foundation estimates that below a SALT cap of $ 72,500, 80% of the benefit would go to those earning more than $ 200,000, while only 2.5% would go to those earning less than $ 100,000. The highest earners, according to the Committee for a Responsible Federal Budget, would see an annual tax cut of $ 23,000. No matter how you do it, SALT cap changes end up benefiting the rich at the expense of low and middle income households. In particular, the repeal of the SALT cap would massively benefit high income earners in certain states with high state and local taxes. One estimate concludes that more than 50% of the benefits of repealing the SALT cap would flow to just four states: California, New York, New Jersey and Illinois.

For the sake of fairness, people with the same income and the same life circumstances should have the same federal tax payable. Restoring the full SALT deduction makes this impossible. As a result, people in a similar situation in low-tax states would pay a higher federal tax bill than those in high-tax states. Put simply, people in low-tax states pay more for the same federal services. This is unfair and represents a shift in income from low tax states to high tax ones.

The government should raise taxes to pay

The inclusion of this tax cut for the rich in the reconciliation bill means that there could be other compensatory tax hikes to pay for it. A five-year retroactive repeal is expected to cost the government about $ 475 billion in revenue by the time the cap expires at the end of 2025. To put that cost into perspective, the Non-partisan Joint Committee on Taxation estimated that the Increasing federal corporate income tax rate to 26.5% would generate $ 480 billion in revenue in the first nine years of enactment. That’s nine years of income from an economically damaging tax hike to help pay for five years of tax cuts for the rich.

Raising the cap to $ 72,500 would cost $ 222 billion until 2026, but would increase revenue by $ 2 billion until 2031. Since SALT’s current cap will expire at the end of 2025, the extension of the cap until 2031 increases revenues in recent years, giving the appearance that the increase in the SALT cap is being offset. This is nothing more than a classic Washington accounting gimmick.

There is no shortage of bad policies in the so-called Build Back Better Act. It would raise taxes for the middle class, lower wages, raise prices, and shrink the economy. It would be inexcusable for Democrats to include such a blatant benefit for wealthy households, but given other special interests exceptions included in the package, it should come as no surprise.

Instead of repealing or increasing the SALT cap, lawmakers should eliminate the deduction altogether, or at the very least preserve the $ 10,000 cap established by the 2017 bill. Taxpayer money shouldn’t be spent to subsidize wealthy families residing in states with high state and local taxes.

Read the original article on Business Insider