WASHINGTON — Democrats have long promised to raise taxes on only the rich to pay for the social programs in their Build Back Better Act, but tensions broke out Tuesday over a proposal to include a major tax break for the wealthy.
House Democrats announced in the afternoon that they had reached a deal to lift the SALT cap — a cap on how much state and local taxes can be deducted against one’s federal tax bill, currently set at $10,000. Though no legislative text has been released, the deal would see the SALT cap lifted for five years and be made retroactive, resulting in a potentially lucrative refund for many filers next year.
The problem for Democrats is that lifting the SALT cap overwhelmingly benefits high-income tax filers. Sen. Bernie Sanders came out against the proposal, seemingly threatening to block it from passing.
“The overwhelming bulk of that goes to the top 5%. That is unacceptable,” Sanders said. “That is a direct contradiction of everything we have been talking about.”
At an estimated cost of $90 billion per year, SALT cap repeal would make a regressive tax break one of the largest components of the Build Back Better Act, with a budget impact larger than policies like Affordable Care Act expansion, investments in home care support, affordable housing, and expanding Medicare to cover hearing loss.
Harvard economics professor Jason Furman tweeted that a majority of Americans with a net worth between $50 million and $300 million would get a tax cut from the Build Back Better Act if lifting the SALT cap is included, despite other new taxes instituted on millionaires and billionaires.
Democrats will need to find a solution or risk endangering the entire $1.75 trillion Build Back Better Act. They need the vote of Sanders and every other Democrat in the Senate for the bill to pass that chamber. In the House, the so-called SALT caucus — made up of representatives from states with high taxes, like New Jersey, New York, and California — has threatened to torpedo the bill unless SALT relief is included.
Sanders proposed a possible compromise Tuesday wherein the cap would be raised rather than lifted, allowing people who make up to $400,000 per year to receive a tax break.
“There are a number of states and cities all over America where housing is very expensive and where people are paying very high property taxes. I think they deserve relief,” he said. “But to make a total repeal is to give massive tax breaks to very, very wealthy people.”
The politics of SALT are complex and reverse some of the usual congressional norms. Republicans first instituted the $10,000 cap in their 2017 tax bill. The cap disproportionately affects Democratic states, which tend to have higher local tax rates.
Democrats argued, and continue to argue, that it was a political move to target Democratic areas. “It was never about tax policy. This was about punishing blue state voters,” Sen. Ron Wyden said Tuesday.
Whether you see it as a matter of tax policy or politics, the revenue impacts are real. Republicans are now taking swipes at Democrats for bailing out the rich. Commentators across the left and center also came out against the proposal.
“We can’t pass a bill like this and ever again have any credibility criticizing Republican tax cuts. This is a disaster,” tweeted Ben Ritz of the Progressive Policy Institute.
The Congressional Progressive Caucus in the House has not yet weighed in on the proposal.
“I think SALT is still being discussed. Let’s see what the bill is. I’ve made my concerns about it clear,” caucus chair Pramila Jayapal said.