A tax break for rich just makes no sense

Newly in control of Congress and the White House, and with a huge policy to-do list left over from the Trump years and the coronavirus pandemic, Democrats are fairly overflowing with legislative ideas, many of them worth pursuing — and at least one that is decidedly not. We refer to the push by some congressional Democrats to reinstate the federal tax deductibility of state and local taxes paid.

Such a measure would deprive the government of up to $80 billion per year to help pay for President Joe Biden’s ambitious environmental, infrastructure and health care plans. Yet if the history of this break’s impact is any guide, more than half of the benefits would accrue to the top-earning 20% of taxpayers, according to the Tax Policy Center. There’s nothing progressive about that; frankly, there’s nothing particularly centrist about it.

Democratic proponents of reinstating full deductibility of state and local taxes — or SALT — point out, correctly, that it was part of the tax code for more than 100 years until the Trump tax bill of 2017 capped the deductible amount at $10,000. The net effect was to reduce the deduction’s cost to the government from $100.9 billion in fiscal 2017 to $21.2 billion in fiscal 2019, a savings Republicans used to help cut tax rates for individuals and corporations.

There is simply no denying, however, that the SALT deduction disproportionately benefits well-off households, and that limiting it was one of the few aspects of the Trump bill that actually promoted tax progressivity. It also reduced a nontransparent transfer from the rest of the country to high-tax, high-service states such as California, New York, New Jersey, Massachusetts and Maryland. Proponents of the SALT deduction, many of whom represent upper-income, Democratic-leaning cities and suburbs in the aforementioned states, say restricting it amounted to a federal penalty on states that offer a higher level of education, public health and the like. The better way to render such federal support, though, is openly and directly, via spending — as Biden has already done through his covid-relief bill, and as he plans to do in a new $2 trillion infrastructure package.

Nevertheless, four House Democrats from New York and New Jersey have gone so far as to argue that the Biden package must include reinstatement of the SALT deduction, a significant fact given that House Speaker Nancy Pelosi, D-Calif., has only a fourvote majority to work with. For now, Pelosi has not definitively said where she stands on including the SALT break in Biden’s bill, though she, like Senate Majority Leader Charles Schumer, D-N.Y., has favored reinstating it in the past. The White House, meanwhile, appears reluctant to go along, with spokeswoman Jen Psaki observing Thursday that restoring SALT deductibility “obviously is not a revenue raiser” and challenging proponents to come up with a way to pay for it. Unfortunately for Biden, the issue divides his party, but the truly progressive course is to resist this tax break for the rich no matter how many Democrats favor it.