TRY TO RUFF the whole of a party’s platform into one giant bill, and a battle royale will ensue. This is the case with the Democrats’ goal to cram policy on poverty reduction, child care, climate change, health care, higher education, preschool education, reform. tax and more in the Build Back Better (BBB), which was passed by the House of Representatives on November 19.
As its price slashed to $ 1.7 billion over a decade, half the original price, the hunger – or squid – games between progressives and moderates have grown fiercer. (Against the united Republican opposition and voiceless in the Senate, any Democratic defection would defeat the bill.) This has mostly benefited the moderates, as Senators like Joe Manchin and Kyrsten Sinema have brandished their veto threats to weaken or suppress some hinted carbon emission limits, a paid family leave program, and tax increases for wealthy Americans and businesses. But a lesser-known faction, the SALT Caucus, maybe he did better.
The SALT The caucus takes its name from the deduction for “national and local taxes”. The exemption, which dates back more than a century, allows taxpayers to deduct property taxes and state income taxes when they are filed with the federal government. For much of its history, this exemption was unlimited. It helped the better-off who faced big bills for their homes and incomes – and high-income, high-tax states that received an implicit subsidy from the federal government. The subsidy cost $ 369 billion (1.9% of GDP) in 2017. He became less generous that year after Republicans passed a law, signed by President Donald Trump, capping the deduction at $ 10,000 per year.
For most Americans, this had little impact. According to the Internal Revenue Service, 87% of tax returns don’t bother to itemize all of their exemptions, which would amount to less than the standard deduction ($ 12,000 for a single filer in 2018). But lawmakers in high-tax states such as New York and California saw the reform not as a laudable effort to tax the wealthy (which it did quite well), but as a punitive blow.
The SALT The caucus was soon formed as a resistance movement. “This was explicitly designed to go after states that tax people to support better schools and services,” said Tom Malinowski, Democratic Congressman from New Jersey and SALT A caucus member, who notes that in some towns in his district, the average homeowner may owe $ 20,000 in property taxes. days before BBB Passing the law in the House, the caucus secured an increase in the deductible expense limit from $ 10,000 to $ 80,000 for the next ten years.
This constitutes one of the most important expenses of the pending budget bill. And it is strongly regressive (see graph). It divides Democrats, who could still push for significant changes in the Senate.
Over the next five years, the new SALT This provision would cost the federal government an additional $ 275 billion compared to the current law. It is much more than BBB child tax credit and earned income spending plans that aim to reduce poverty. Some proponents argue the proposal is in fact deficit neutral over the next decade, albeit hinged on a volatile budget game. The limit of the Trump era on SALT expires in 2026, so while an $ 80,000 cap is expensive until then, Markers account for it as a tax increase (relative to full deductibility) from 2026 to 2031.
President Joe Biden insisted that BBB is a plan to revitalize the middle class. So it’s an irony, argues Marc Goldwein of the Committee for a Responsible Federal Budget, a think tank, that one of the most expensive items “is a big tax cut that middle-class people and the poor do not get. all. ”Almost all of the profits are concentrated among the very rich.
Modeling by the Tax Policy Center, another think tank, shows that the average benefit for the 20% of middle earners is $ 20. But those in the top 20% would get an average tax cut of $ 2,100; the richest 1% would get a reduction of almost $ 15,000. The majority of the benefits would go to Americans earning more than $ 500,000 per year. Less than 9% would go to Americans earning less than $ 200,000.
This is not just “a colossal waste of money in favor of regressive and distorting tax relief,” says Richard Reeves of the Brookings Institution, another Washington think tank, but “in a form. tax self-injury and, therefore, political self-injury. prejudice. ”Jason Furman, former economic adviser to Barack Obama, called it“ obscene ”.
The challenge is to reverse the usual positions on fair taxation. Mitch McConnell, the Republican leader in the Senate, castigates the “windfall for millionaires and billionaires in the Blue State” and that the bill grants “a net tax cut to 89% of people earning between 500,000 and $ 1 million ”. Some pro-deduction Democrats argue that their own “creative states” deserve a break, which “moocher states” do not.
It is not known whether the change will become law. For the two Democratic leaders in Congress, Nancy Pelosi of California and Chuck Schumer of New York (pictured), the provision would be a boon to their home ridings. But some Democrats are furious. Michael Bennet, a senator from Colorado, called the idea “absurd.” Bernie Sanders, another strident opponent, is pushing to limit the deduction to those earning less than $ 400,000 a year. He did not say whether he would be prepared to torpedo the entire measure bill.
The White House has been sheepish about the idea, which was not in Mr. Biden’s original proposal. His press secretary recently offered this resounding endorsement: “The president’s excitement about this is not about the SALT deduction; these are the other key elements of the package. ■
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This article appeared in the United States section of the print edition under the headline “A Tax Plan for the Upper Class”