Congressional Democrats and President Joe Biden are moving fast on COVID relief legislation, which may top $2 trillion after progressives and more moderate Democrats are finished negotiating on a reconciliation bill. Sadly, one of the worst, most regressive policies lawmakers could include in a relief bill is being championed by Senate Majority Leader Chuck Schumer (D-N.Y.): a repeal of the $10,000 limit on the state and local tax deduction.
Schumer recently introduced a bill to repeal the SALT deduction limit, which was first passed into law through the Tax Cuts and Jobs Act in 2017. Schumer has the support of Sen. Ron Wyden (D-Ore.), the new chairman of the Senate Finance Committee, along with Senate Majority Whip Dick Durbin (D-Ill.). With powerful senators backing the effort to repeal the SALT limit, this bill seems primed for conclusion in a COVID relief package.
In a statement on his new bill, Schumer argued that “the cap is costing middle-class families tens of thousands of dollars.” To take Schumer at his literal word that the SALT cap is costing any family “tens of thousands of dollars,” consider how much a household would have to make to pay $30,000 in state income taxes in Schumer’s home state of New York. Simple math suggests married taxpayers filing jointly would have to make $500,000 in 2020 to pay just over $30,000 in state income taxes. Middle-class?
Indeed, the Tax Policy Center estimated in 2018 that repealing the $10,000 SALT limit would primarily benefit families in the top 5 percent of income earners around the country. More than 82 percent of the benefits of the policy would flow to households in the 95th to 100th percentile of cash income. Households in the top 1 percent of income would receive an average tax break of $31,380, while households in the top 0.1 percent of income would receive a $142,590 tax cut.
The regressive nature of repealing the SALT deduction limit is why scholars at the left-leaning Brookings Institution have called on Congress to eliminate the SALT deduction rather than expand it, calling the tax break “a handout to the rich.” And it may be why — to their credit — 16 House Democrats voted against a 2019 bill that would have doubled the SALT deduction limit to $20,000 in 2019 and eliminated the limit completely in 2020 and 2021. Rep. Alexandria Ocasio-Cortez (D-N.Y.) was among the Democrats voting against the bill, arguing that its benefits would flow to wealthy taxpayers.
Unfortunately, this push for SALT cap repeal cuts across party lines in the opposite direction as well. A companion bill to Schumer’s legislation, introduced by Rep. Tom Suozzi (D-N.Y.) in the House, has the support of three Republican lawmakers from high-tax states. That lends this bad policy the “bipartisan” imprint that congressional leaders likely crave in seeking to include it in a COVID relief bill in the coming weeks.
But Republicans — and Democrats — who care about the nation’s fiscal responsibility should be opposed to repealing the SALT deduction limit. Last year, the nonpartisan Joint Committee on Taxation estimated that eliminating the SALT limit in tax years 2020 and 2021 alone would decrease federal revenues by $136 billion, adding to record U.S. debt and deficits. For budget hawks, every deficit-financed dollar spent on COVID relief counts, and it seems obvious that we should not add nearly $150 billion to the deficit on a policy that will primarily benefit families that are largely withstanding the COVID crisis.
Biden has an opportunity to lead here. Schumer, Durbin and Wyden are three of the most influential Democrats in the country right now, but the president ultimately occupies the most powerful position in the party and in Washington. Biden and Treasury Secretary Janet Yellen can make clear to Schumer and company — as they pursue a bipartisan COVID relief bill — that the SALT limit repeal is an unnecessarily divisive and bad policy for inclusion in a final package.
Should the bipartisan train come off the rails and Democrats go it alone on a COVID relief package, the president can still make clear to lawmakers that a 12-figure transfer to the richest 5 percent of Americans does not belong in emergency legislation to help Americans struggling the most during this pandemic.
There are several good ideas in Biden’s COVID relief plan, including money for the vaccines that will help us emerge from this awful period and money for the testing that will bridge the gap between now and mass vaccine uptake. Tacking on nearly $150 billion as a handout that benefits high-income taxpayers in high-tax states is precisely the wrong way to deliver relief to people who need it.
Andrew Lautz is a policy and government affairs manager with the National Taxpayers Union, a nonprofit dedicated to advocating for taxpayers at all levels of government.
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