Even as Democrats prepare major tax increases on corporations, capital gains, imports, and much more, they’re also preparing special carveouts for friendly interest groups. A new above-the-line $250 deduction for union dues is among the tax credits created in the House Democratic tax bill released this week:
SEC. 138514. ALLOWANCE OF DEDUCTION FOR CERTAIN EXPENSES OF THE TRADE OR BUSINESS OF BEING AN EMPLOYEE.
(a) ABOVE-THE-LINE DEDUCTION FOR UNION DUES.—Section 62(a)(2) is amended by adding at the end the following new subparagraph:
‘‘(F) UNION DUES.—The deductions allowed by section 162 which are both— ‘‘(A) not in excess of $250, and ‘‘(B) attributable to a trade or business consisting of the performance of services by the taxpayer as an employee if such deductions are for dues paid to a labor organization described in section 501(c)(5) and with respect to which such taxpayer remained a member through the end of the taxable year.’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2021.
Union supporters claim the proposal simply restores a deduction that existed before the 2017 tax bill, but this is not true. Before 2017, all membership dues payments and unreimbursed employee expenses, not just union member dues, were deductible. Unlike the union dues deduction currently being proposed, the deduction could only be taken if a taxpayer itemized, and if together with other “miscellaneous itemized deductions” the amount totaled more than 2 percent of a taxpayer’s income. Only 9 percent of taxpayers claimed unreimbursed expenses at all, most of which were travel and entertainment costs.
This version would not allow the deduction of dues payments to professional organizations, or agency fees paid by non-members of unions that still fund union activities. It would incentivize just one type of payment: union dues paid by union members. It would also inappropriately be made an “above the line” deduction, a status generally reserved for items that are excluded from or adjust what is considered income.
It also marks a departure from the better practice of simplifying the tax code by letting taxpayers take a large standard deduction. The accumulation of small deductions like this one makes the tax code more complex and difficult for average Americans to navigate, on top of creating an added burden through the associated paperwork, record-keeping, and compliance.
The 2017 Tax Cuts and Jobs Act rightly did away with many small deductions that only complicate the tax code in the name of favoring well-connected groups. Creating a special above-the-line deduction for union dues would represent an unfortunate step back.