While Democrats wait for a score from the Congressional Budget Office (CBO) on their “Build Back Better” (BBB) bill, President Biden and progressives are on a PR campaign to sell their tax-and-spend plan as a major boon for the middle class. Despite Democrats’ attempt to sell this bill as an investment to address climate change or a social spending bill, one of the largest parts of Democrats’ bill is a massive tax cut for America’s wealthiest taxpayers. On average, middle-class taxpayers could receive a whopping $20 tax cut while the top 0.1 percent would see a $16,000 tax break from the proposed state and local tax (SALT) dedication cap change.
One of the most contentious and divisive inclusions in BBB is the lifting of the SALT deduction cap since it is highly regressive and would lower federal revenue by tens of billions yearly. The SALT deduction allows taxpayers who itemize their returns to deduct certain state and local taxes, like property or income tax, from their taxable income. Roughly 11 percent of filers itemize, partially due to the increase in the standard deduction included in the the Tax Cuts and Jobs Act (TCJA). TCJA also capped this deduction at $10,000 through 2025, but House Democrats are proposing lifting the cap to $80,000 through 2030.
The SALT deduction disproportionately benefits the wealthy in high-tax states. President Obama’s former Chair of the Council of Economic Advisors called the inclusion of this tax cut for the ultra-rich in BBB “obscene,” and progressives have derided it as a “gift to billionaires.” The Tax Policy Center backs up this analysis, estimating that raising the SALT cap to $72,500, less than House Democrats’ current proposal, would leave middle-class taxpayers with a measly $20 tax cut. Meanwhile, the top 0.1 percent (those making more than $4 million this year) would see a tax break of roughly $16,000.
In the best of times, a $20 tax cut would be seen as little more than a drop in the bucket. However, you’d be hard pressed to describe the current economic climate as optimal. A new Bureau of Labor and Statistic (BLS) report paints a troubling picture for taxpayers as we head into the holiday season. In October, inflation rose 6 percent, exceeding expectations, and fuel prices rose over 12 percent. Americans are going to be paying more for groceries, to fill up their car, and to meet their other needs. Of course, that’s on top of the supply chain issues Americans are facing.
The data significantly undercuts Democrats’ narrative that their tax-and-spend plan will be a boon for middle class taxpayers. The Center for a Responsible Federal Budget found that, “a household making $1 million per year will receive ten times as much from SALT cap relief as a middle-class family will receive from the child tax credit expansion.” Raising or repealing the SALT cap lowers federal revenue, a fact which has led Democrats to employ quite a few budgetary gimmicks, like raising the cap for five years and then lowering it for the next five. However you slice it, the benefits of lifting the SALT cap overwhelmingly flow to high-income taxpayers in high-tax states.
As Democrats wrestle with how to divvy out the $1.5-$2 trillion, it’s notable that they found a way to include a SALT cap lift in BBB at all. The House framework currently has a one-year extension of the expanded child tax credit and a one-year extension of the expanded earned income tax credit. These two expanded tax credits are held up by Democrats as important ways to help low- and middle-income taxpayers, yet they opted to make political bets that a future Congress will further extend these credits. However, some Democrats are unwilling to leave this tax cut to the high-income taxpayers in their respective districts and states up to chance.
In its current form, it is hard to overlook the enormity of the SALT cap reform in this bill, though higher profile inclusions like climate, child care, and prescription drug provisions have attracted more attention. BBB is floundering in public polling, and a massive giveaway to America’s wealthiest taxpayers is unlikely to change that. Democrats should remove this egregious and regressive tax giveaway.