Joe Biden tells us he is intent on winning in November “for the workers who keep this country going, not just the privileged few at the top.”
The election is a referendum not only on the moral failings of President Trump, Democrats argue, but on the economic fissures of the new economy. It is a fight, Mr. Biden says, on behalf of “the young people who have known only an America of rising inequity and shrinking opportunity.”
Why on earth, then, are Democrats fighting — and fighting hard — for a $137 billion tax cut for the richest Americans? Mr. Biden, Nancy Pelosi and Charles Schumer don’t agree on everything, but on this specific issue they speak with one voice: the $10,000 cap on deductions for state and local tax (better known as the SALT deduction) must go.
The House of Representatives has already passed legislation removing the cap, allowing the amount of the deduction to rise. If the Senate turns blue in November, Democrats have promised to return to the issue. “I want to tell you this,” Senator Schumer said in July, “If I become majority leader, one of the first things I will do is we will eliminate” the SALT cap “forever.” It “will be dead, gone and buried.”
The cap was introduced as part of the 2017 Republican Tax Cuts and Jobs Act. Overall, the package was hugely skewed in favor of the rich: 20 percent of the value of the tax cuts went to households whose income was in the top 1 percent. Democrats lined up to decry the changes as a giveaway to the wealthy. And so it was, in the main.
But there was one seriously progressive element, a single diamond in a lot of rough: the introduction of the SALT cap. Lifting it would therefore reverse one of the few good things about the 2017 bill. Almost 60 percent of the benefit of removal would go to the top 1 percent of households (of which 90 percent are white). For the superrich, the top 0.1 percent, repeal would make for an average tax cut of around $145,000 a year. In isolation, this change would be more skewed to the rich than the Republican tax bill as a whole.
What’s going on here? Senator Schumer and others are dressing up the cut in anti-Covid clothes, suggesting that it would help people in decimated cities like New York. This is specious. It is true that potential beneficiaries mostly live in higher-tax cities and states, but it is the richest residents who would reap most of the rewards. This is not a tax cut for those hit hardest by the virus. Families in the middle 60 percent of the income distribution nationally would see, on average, a minuscule reduction in their tax bill, around $25.
To be fair, leading Democrats combine their calls for a removal of the SALT cap with other offsetting tax changes, like lifting the top rate of income tax, giving the rich money with one hand and then taking it back with another. But really, this is no way to do tax policy.
Rather than repealing the cap, the deduction should be removed altogether. Even with the cap in place, it is still highly regressive, with 75 percent of the economic benefits going to families in the top fifth of the income distribution.
Previous Democratic arguments for a generous SALT deduction have included the idea that it encourages states to spend more by making it easier for them to tax more. State coffers are certainly squeezed in 2020, as they will be in 2021. But if the goal is for the federal government to provide additional support to state and local governments, far better to do so directly, rather than by the roundabout route of offering a tax break to the rich.
The real motives here are surely political; for many Democrats in 2020, electoral calculations are more important than distributional ones. Unsurprisingly, repealing the SALT deduction appears to be popular among richer voters in blue cities and states. In the 2018 midterms, Democrats did particularly well in affluent suburbs where many households claim the SALT deduction. One race seen as instructive on this front was Jennifer Wexton’s thumping 12-point defeat of the incumbent Republican Barbara Comstock in Virginia’s 10th Congressional District, where more than half of taxpayers claimed the deduction before the 2017 tax bill.
By pushing for repeal of the cap, Democrats are leaving themselves wide open to criticisms of hypocrisy and opportunism. As Senator Michael Bennet, one of the few Democrats opposed to removing the SALT cap, pointed out to his Senate colleagues in October 2019: “We can say we are for a progressive tax code and for fighting inequality, or we can support the SALT deduction. But it is really hard to do both.” Alexandria Ocasio-Cortez also voted against repeal.
Mr. Bennet and Ms. Ocasio-Cortez are right. Whatever its short-run political attractions, the Democrats’ pursuit of such a deeply regressive tax cut casts serious doubt on their egalitarian claims. It is a shame to see Democrats urging a big tax break for the richest, whitest families, which is arguably the very last thing the country needs right now.
Richard V. Reeves (@RichardvReeves) is a senior fellow at the Brookings Institution, where Christopher Pulliam is a research analyst. Mr. Reeves is the author of “Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It.”
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