The SALT deduction is a regressive tax that worsens Biden’s social package
When it comes to taxes, Democrats take particular pride in the fact that their party advocates taxing the rich.
So it’s strange that President Joe Biden’s Build Back Better package ignores this axiom. In the version of the bill that was passed by the House of Representatives, Moderate Democrats introduced a provision that raises the state and local tax cap, or SALT, deduction of $ 10,000 to $ 80,000. The deduction allows wealthy families in those states to write off their state taxes on their federal income tax returns.
Senate Democrats should follow the advice of Iowa Rep. Cindy Axne and do not raise the SALT ceiling. Better yet, Democrats should eliminate the SALT deduction in its entirety and use the revenue generated to improve Bill Biden’s social programs.
In blue states like California, New York, and Illinois, tax systems are progressive on paper. Families in the highest tax brackets are expected to pay more taxes than low-income families. The SALT deduction creates a loophole that allows these families to bypass their responsibilities to the federal government.
To push back against the idea that SALT deductions benefit the wealthy, moderate Democrats in these blue states say increasing the SALT cap is a tax cut for the middle class. The reality is that someone in the middle of 60 percent of the income distribution receives a tax break of $ 37 of the current SALT deduction – compare that to the top 20% who could get up to $ 10,000 in tax relief.
Axne hit right on the head when she advocated that we not increase the SEL cap, saying raising the cap would benefit the wealthy, not the people of Iowa.
It is estimated that raising the cap to $ 80,000 will cost the government $ 340 billion in lost revenue over 10 years, which means that the revenue that could be generated by removing the SALT deduction could be used to extend funding for social programs in the Build Back Better bill, like the Child Tax Credit, which gives families a boost. refundable tax credit for each child they have.
Of course, removing the SALT deduction overnight could have destabilizing effects on households. To allay these concerns, the tax specialists of Brooking argued that for two years Democrats should increase the SALT cap to $ 20,000 for married couples and keep it at $ 10,000 for singles.
After these two years, the SALT cap would gradually decrease by $ 2,000 and $ 1,000 per year, so that the SALT deduction would be phased out from the tax code by 2032. This would not only provide stability to households that benefit from the SALT deduction, but also increase $ 90 billion per year in revenue for the government to fund the aforementioned child tax credit.
The current expansion of the Child Tax Credit, courtesy of the American Rescue Plan, has raised nearly 3 million children lifted out of poverty in the past year. Extending the tax credit further with the money generated by eliminating the SALT deduction would go a long way in ensuring that children escape destitution for years to come.
During my life, Democrats have always been proud to want to use government programs to help people.
However, when moderate Democrats shy away from the needs of our most vulnerable in order to appease their wealthy voters, the Democratic Party’s hypocrisy begins to show itself. If we are serious about building back better, we should phase out SALT deductions.
Columns reflect the views of the authors and are not necessarily those of the Editorial Board, The Daily Iowan, or other organizations with which the author may be involved.