Congress must not pour SALT on the U.S. credit rating

The following is from a Washington Post editorial:

Per GOP orthodoxy, it’s always time for a tax cut, no matter what’s going on in the U.S. economy. Even though jobs are plentiful, growth has ticked up, inflation is coming under control and the fiscal 2023 budget deficit is projected to hit 6 percent of gross domestic product — the Ways and Means Committee voted on June 13 to slash levies.

The net increase to the debt from these measures would be $19 billion over 10 years, not including interest. However, this relatively benign estimate hinges on the unrealistic assumption that a future Congress will actually let the tax cuts expire by the end of 2025, as the bills provide. In the more likely event that these breaks become permanent, the bills’ 10-year cost would balloon to $950 billion, according to the Committee for a Responsible Federal Budget.

The good news — if that’s the right phrase — is that internecine GOP disputes might prevent the measure from passing the full House. Republicans from New York, California and other high-tax states are demanding inclusion of an expanded deduction for state and local taxes paid, or SALT. The 2017 Republican tax bill capped this break at $10,000 a year through 2025.

The SALT deduction is not a purely partisan issue but a matter of class and region: Wealthy blue-state suburbanites, Republicans and Democrats, have a common interest in passing some of their high property and nonfederal income taxes on to the Treasury. In this case, bipartisanship does not connote good policy. Reinstating this perk could cost up to $80 billion per year, with the benefits overwhelmingly flowing to upper-income households.

Even if the GOP manages to put aside its internal differences and pass a tax bill through the House, it wouldn’t stand much chance in the Democratic Senate. The Republicans probably won’t accomplish much, except to send a message of tax-cutting zeal to the party base. Unfortunately, that will come at the cost of demonstrating to an anxious world what Fitch Ratings had in mind when it reduced the U.S. credit rating last week: “a steady deterioration in standards of governance.”