The Democrats’ self-stated effort to “change America,” and to do so unilaterally through the budget reconciliation process, has revolved around an ever-changing menu of tax hikes guided not by sound tax policy, but by the revenue they want to raise.
This reckless tax increase is being promoted under the pretense of “taxing and leveling the playing fields”, “taxing the wealthy” or “having everyone pay their fair share”. Democrats are determined to tax all people. If the cap on state and local tax (SALT), is removed, large amounts of tax relief would go to the richest 1 percent.
Before the Tax Cuts and Jobs Act (TCJA) was signed into law in 2017, the SALT deduction was one of the biggest itemized deductions available to taxpayers, mainly benefiting wealthy individuals living in high-tax states.
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This federal subsidy was ended by the TCJA, allowing residents of California to be on a more equal footing than those of West Virginia and Idaho.
Members of Congress representing high-tax countries have been trying to repeal the cap since then. Democrats find the SALT issue awkward, and it’s no surprise that it wasn’t discussed publicly during House discussion of the new tax-and spending bill. Instead, they have stealthily airdropped the proposal into the most recent version of their reckless Build Back Better legislation.
The updated proposal makes it look less expensive by using a variety of accounting tricks, but analysis done by the Committee for a Responsible Federal Budget shows that the proposed is the second most expensive item in federal legislation for the next five year. This proposal is nearly double the cost of funding home-medical care for the elderly or disabled, making it more expensive than creating a paid family leave and medical program. The Congressional Budget Office, Congress’s nonpartisan scorekeeper, recently confirmed these figures.
Budget tricks also try to conceal the real tax cut that wealthy taxpayers in high-tax areas receive.
The Tax Policy Center says the latest plan would provide little or no benefit for low- and middle-income households, but would generate a substantial tax windfall for those with much higher incomes. An American Enterprise Institute analysis has shown that the largest tax savings will come from the 10 biggest states. 46% of this cost is borne by taxpayers in California New York, New Jersey, Illinois and New Jersey.
The truth is Democrats seek to tax everyone, and a large portion of tax relief, if the state and local tax (SALT) cap is repealed, will go to the wealthiest 1%.
Budget gimmickry tries also to conceal the real tax cut that rich taxpayers in high-tax areas receive. This proposal will significantly increase the SALT cap immediately, providing front-loading relief to rich taxpayers. It also adds inflationary fuel to economic fires. The lower cap is then reinstated years later, with backloading the tax increases that advocates say will be “paid for.”
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This dynamic makes it certain that at least some rich taxpayers – for example, those who move between states – will benefit from relief, but never actually pay the cost.
The bill’s benefits are short-lived for those with low and moderate incomes, while the tax benefits that accrue to the well-off last longer.
While much of this reality stems from the inclusion of the SALT deduction, the analysis doesn’t even account for other provisions expected to primarily benefit the wealthy, like tax credits for purchasing union-made electric vehicles or electric bikes.
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It is false to suggest that this bill would provide a tax cut for middle-class people. The SALT deduction is ultimately a wealth transfer from low-tax to high-tax state residents, and punishes residents of low-tax states for their states’ fiscal prudence.
As multiple analyses show, the largest amount of relief from the Democrats’ bill will go to those at the very top, with Idahoans and others in low-tax jurisdictions footing the bill.
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