SALT deduction that benefits the rich divides Democrats

WASHINGTON – A plan by the House Democrats to cut taxes on top earners in states like New Jersey, New York and California in their $ 1.85 trillion social spending program becomes a first political albatross for the party, with Republicans already rallying to accuse Democrats of challenging their populist principles in favor of lower taxes for the rich.

The review offers a glimpse of emerging battle lines ahead of next year’s midterm elections and highlights the challenge Democrats face when local politics collide with the party’s national ambitions to promote economic fairness. For Republicans who defended their 2017 tax cuts, which largely benefited the rich, the Democrats’ proposal to increase the national and local tax deduction cap is an opportunity to reverse the scenario and introduce the Democrats like the party of the plutocrats.

“I think they are struggling to maintain their stated support for taxing the rich, but they are providing a huge tax boon under the SALT cap,” said Representative Kevin Brady of Texas, the top Republican on the committee. ways and means of the House, referring to the acronym for state and local taxes. “If your priority is working families, make it your priority, not the rich. “

Republicans, looking for ways to fund their own tax cuts in 2017, capped the amount of state and local taxes households could deduct from their federal tax bills at $ 10,000. Democrats in heavily taxed states like New York, New Jersey and California have spent years promising to repeal the cap and are set to raise it to $ 80,000 until 2030, before lowering it to $ 10,000 in 2031. The cap, which is currently set to disappear in 2025, would then expire definitively in 2032.

The bill would sharply reduce taxes for the next five years by increasing the value of the deduction, but that would mean higher taxes over the next five years than if the cap were to expire. The Congressional Budget Office said Thursday that over a decade the changes to the deduction would amount to a tax hike that would generate around $ 14.8 billion in revenue.

The House’s proposal is subject to change in the Senate, where it has its own champions and detractors. New York Democrat and Majority Leader Senator Chuck Schumer adopted a more generous deduction while Senator Bernie Sanders, the Vermont Independent who is chairman of the Senate Budget Committee, sharply criticized the proposal for bedroom. He joined New Jersey Democrat Sen. Bob Menendez in negotiating an income cap – up to $ 550,000, though that number is constantly changing – on who can receive the deduction.

This week, the Congressional Republican National Committee released survey data it said suggests that most voters in battlefield states would be less likely to vote for Democrats who support a policy that grants cuts to taxes on wealthy landowners in New Jersey, New York and California. He said the Democratic Party should “defend its politically toxic policies that penalize hard-working families to reward liberal elites.”

Leading tax and budget analysts have argued that expanding the deduction amounts to an unnecessary giveaway to the rich.

According to impartiality Committee for a Responsible Federal Budget, a Washington family of four earning $ 1 million a year would get 10 times the tax break next year by expanding state and local tax deductions that a middle-class family would receive from another provision of the social policy program, an expansion of the child tax credit. Citing calculations from the non-partisan Urban-Brookings Tax Policy Center, the group said two-thirds of households earning more than $ 1 million a year would receive a tax cut under the legislation due to the ‘increased local and state property tax deduction.

The proposal has put some Democrats on the defensive.

Representative Jared Golden, Democrat of Maine, said this week that the tax giveaways to millionaires sounded like something Republicans would have imagined.

“Supporters have said the BBB taxes the rich,” Golden said said on twitter, referring to the bill known as the Build Back Better Act. “But the more we learn about the SALT provisions, the more it looks like another giant tax break for millionaires.”

The problem further complicates the passage of the bill, which Democrats are trying to push through both the House and the Senate without the support of Republicans. Given their slim majority in both chambers, Democrats cannot afford to lose more than three votes in the House and none in the Senate.

Some Democrats in Congress in high-tax states have made the inclusion of the more generous deduction a prerequisite to their support for the bill.

“There is a range of divergent views on SALT, but I mean, it’s pretty obvious that there has to be something in there for sure,” said Rep. Richard E. Neal of the Massachusetts, Chairman of the House Ways and Means Committee.

The surprisingly tight race for governor of New Jersey was a clear reminder that the state’s high property taxes – and the limit on their deductibility – are high on voters’ lists of concerns, strategists and officials said. other political observers.

“As Covid sort of recedes, taxes take the place of the number one issue in New Jersey,” said Michael DuHaime, Republican political strategist at Mercury Public Affairs.

The SALT cap “has resulted in a fairly significant tax increase for many families” in suburban New York, Mr. DuHaime said. With Democrats in power, these owners are counting on some relief, he said.

Now that former President Donald J. Trump has been removed from office, New Jersey has “come back to its own way” of being deeply concerned about the state’s affordability, said Julie Roginsky, a strategist who advised Governor Philip D. Murphy, a Democrat, during his first campaign in 2017. The average state homeowner pays about $ 10,000 in property taxes, she said, with the cap reaching about a third of New Brunswick residents Jersey.

“I think that’s absolutely a line in the sand that some of these vulnerable members of Congress need to draw,” Ms. Roginsky said.

Several Democrats who represent affluent suburbs where most homeowners pay well over $ 10,000 a year in property taxes will face serious challenges in the midterm elections next year, strategists said. Their short list of vulnerable House members includes Josh Gottheimer, Mikie Sherrill and Tom Malinowski of North Jersey, and Andy Kim, who represents part of the Jersey Shore, all of whom support raising the SALT cap.

If Democrats can change the SALT deduction retroactively to cover 2021 taxes, those incumbents can campaign for giving a tax cut, Ms Roginsky said. But if they fail, their Republican opponents – like Thomas Kean Jr., a state senator who challenges Mr Malinowksi – will be able to use that against them, she said.

“It might not play out well in Vermont or the Alexandria Ocasio-Cortez district, but if you’re Nancy Pelosi, you understand that the road to coming of age goes through places like suburban New Jersey and the suburbs of California and the suburbs of New York, “said Ms. Roginski said.

Ben Dworkin, director of the Rowan Institute for Public Policy and Citizenship at Rowan University in Glassboro, NJ, cited the surprisingly tight race for governor of New Jersey this year. He noted how effective Mr. Murphy’s challenger, Jack Ciattarelli, was at playing on voters’ feelings about the state’s high taxes.

“He hammered home this question,” Dworkin said.

Public polls leading up to the election showed affordability in general to be the “biggest problem” in the state, he said.

“From an elected official’s perspective, anything you can do to ease the tax burden, like changing the SALT cap, is a huge benefit,” Dworkin said.

Even one of the state’s top Republicans, Jon M. Bramnick, the minority leader in the state assembly, has said he will applaud Democrats if they give tax breaks to residents of New York. Jersey.

“If Gottheimer and Mikie Sherrill and the others stand up to Republicans and get there, I will say I’m with them and proud of their work,” Bramnick said.

Mr Gottheimer said in an interview that people migrated from New Jersey because the deduction cap meant an increase in the cost of living. He rejected criticism that the lifting of the cap was a tax cut for the rich, arguing that this was not the case in his state.

“My job is to fight for my district, and again, if other states or districts don’t want it, they don’t have to take it,” Mr. Gottheimer said. “If you come to my state, it’s an existential threat.”

Yet the overall economic impact of the cap in high-tax states is not as clear as those who support its increase suggest.

Daniel Hemel, a law professor at the University of Chicago whose research has focused on taxes, argued that under the current proposal, millionaires would in fact face higher taxes than they realize. otherwise would have done in the second half of the decade.

And while he said the Liberals should be concerned that the law would mean some wealthy people would get big tax breaks, he argued that the Republicans were spurious in their attacks given the structure of their tax cut. $ 1.5 trillion four years ago.

“I think any Republican who voted for the 2017 tax law loses the ability to criticize the Liberals for their regressive tax policies,” Hemel said.

Emily cochrane contributed reports.



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