Program in spending plan gives billions to the rich

The House is expected to vote this week on President Joe Biden’s Build Back Better legislation. The social spending bill includes investments in clean energy and affordable child care — but it also includes a $285 billion tax cut that would almost exclusively benefit high-income households over the next five years.

The measure would allow households to increase their deduction from state and local taxes from $10,000 to $80,000 through 2026, and then impose a new deduction cap through 2031.

It’s the second-most expensive item in the legislation over the next five years, more costly than establishing a paid family and medical leave program, and nearly twice as expensive as funding home-medical services for the elderly and disabled, according to an analysis by the Committee for a Responsible Federal Budget.

The tax cut would partially reverse a tax hike from President Donald Trump’s signature 2017 tax bill that was particularly burdensome to high-income, high-tax states. Before 2017, taxpayers could deduct virtually everything they paid in state and local taxes from their federal taxes, reducing the amount of income that the federal government could tax. The 2017 tax bill limited that deduction to $10,000 per year, creating what is known as the SALT cap.

The SALT cap created in 2017 is due to expire in 2026, after which point there would be no limit on SALT deductions. The new SALT cap provision is revenue-neutral over 10 years because it imposes a new SALT cap after the original would have expired: $80,000 for four years, and then $10,000 in 2031.

Over the next five years, raising the SALT cap would provide a tax cut only to those who itemize their taxes and pay more than $10,000 in state and local taxes — a group overwhelmingly made up of the wealthy. A recent analysis from the Tax Policy Center says the tax cut will benefit primarily the top 10% of income earners, with almost nothing flowing to middle- and lower-income families.

“Anything you do to eliminate the SALT cap is going to be regressive, because that tax is overwhelmingly paid by very high-income people,” said Howard Gleckman at the Tax Policy Center. “Anything you do to lower that tax doesn’t matter for most people.”