Both sides upset with tax deduction plan in Build Back Better Act
WASHINGTON — On the U.S. House floor Thursday, Rep. Mike Kelly, R-Butler, held a huge poster of jarred tomato sauce, “Biden’s Build Back Better sauce,” he said, turning it to the reverse side to reveal the “ingredients” — billions to research and curb climate change, billions to bolster Internal Revenue Service enforcement and subsidies for electric vehicles.
“It’s flavored with SALT tax by the way, so don’t worry about your sodium content,” he said.
Mr. Kelly is not referring to sodium chloride in a shaker but to the State and Local Tax deduction included in the Democrats’ $1.85 trillion spending package that will benefit top earners, drawing the ire of both conservatives and progressives.
The cost of lifting restrictions on the deduction — a $10,000 cap was put in place under the 2017 tax law — dominated much of the conversation and headlines in Washington last week as the House geared up to approve the Build Back Better Act, which it did early Friday, sending the package to a 50-50 Senate, where Democrats can’t afford to lose a single vote.
While the House version lifts the cap to $80,000 for any household, no matter the income level, Sens. Bernie Sanders, I-Vt., and Bob Menendez, D-N.J., are negotiating a proposal that would only eliminate the cap for those making in the ballpark of $400,000 to $500,000 — a “far superior” plan, according to the progressive Center on Budgetand Policy Priorities.
“At a time when Democrats are correctly demanding that the wealthy finally start paying their fair share of taxes, it would be absurd and hypocritical to provide the richest people in this country with a massive tax break,” Mr. Sanders said in earlyNovember.
At first glance it appears that the SALT debate has brought together strange bedfellows.
Sen. Pat Toomey, R-Pa., took to his Twitter feed this month to lambaste a tax measure that “allows wealthy Americans living in high-tax states [and] municipalities to geta tax break.”
“This means a wealthy individual who chooses to live in the Upper East Side of Manhattan will benefit greatly, but a working class family living in Dauphin County, Pa., will not,” he wrote. “Why should low & middle-income Pennsylvanians have to finance the multimillionaire’s decision to live in Upper East Side Manhattan?They shouldn’t.”
Those in Dauphin County hardly stand to benefit from loosening the deduction cap. There’s a better chance that households in Allegheny and Philadelphia counties could. Taxpayers in Allegheny County paid the fifth-most state and local tax in the Commonwealth in 2018, averaging $1,448 per filer, according to an analysis from the center-rightTax Foundation.
However, the county still paid significantly less in SALT than suburban Philadelphia counties such as Chester County, which averaged $3,790 per filer.
Tax data also shows a wide differencebetween those who itemize and those who don’t — the average filer who itemizes in Allegheny County paid $18,647, nearly 13 times more than the average taxpayer and significantly higher than the current $10,000 cap.
Those best positioned to win are in the counties congregated largely on the West Coast and New England, according to the analysis.
“It comes down to politics,” said Erica Young, an economistat the Tax Foundation, which advocates for permanently eliminating itemized deductions as a way to simplifythe tax code.
“The lawmakers who are most vocal about the cap are lawmakers who represent constituents who have high income and live in high tax jurisdictions. ... It tends to be lawmakers from areas like New York, New Jersey and California, some of the states with the highest tax burdens and higher income jurisdictions,” she said.
However, Howard Gleckman, a senior fellow at the Washington-based Tax Policy Center, said the recent vocal concern from Republicans — all of whom in the Senate are presumed “no” votes on Build Back Better — “is nothing but political posturing,” particularly from Mr.Toomey, who was “one of the primary forces” behind the 2017 Tax Cuts and Jobs Act, which resulted in net tax cutsfor top earners.
“The Democrats accused Republicans in 2017 of passing a tax [bill] that benefited high income people and corporations, and it did, they were right,” Mr. Gleckman said. “What Republicans are doing now is they’re saying ‘Look at what the Democrats are doing: they’re proposing to cut taxes for rich people.’ ... What’s wrong with what they’re saying is if you look at this one provision, they’re right. But if you look at the net effect of the whole bill, they’rewrong.”
The Tax Policy Center, a collaboration between the left-leaning Brookings Institution and the Urban Institute, released an analysis of the overall social and climate spending bill passed by the House that showed middleincome people would in the end save about $700 next year, while people in the top 1% are going to pay about $54,000 more in taxes, with people in between paying evenmore.
The bill includes a temporary extension of the expanded child tax credit, amongother provisions.
A flurry of recent think tank reports looking specifically at how the SALT deductionwould affect middle-class families versus the very wealthy reveal almost no benefit for those on the lower end, depending on where theylive in the U.S.
For example, according to figures released by the Washington-based
Institute on Taxation and Economic Policy, the average benefit for a person making $93,000 in Pennsylvaniawill be $20.
Expensive component
Some analysts and tax policy watchdogs highlight that loosening the deduction cap is one of the most expensive components of the Build BackBetter Act.
According to the Committee for a Responsible Budget, the tax break takes the top spot at costing the government $275 billion, coming in second to the child care subsidies which hit slightly less at $270 billion.
Marc Goldwein, the organization’s senior vice president, called the policy a “massive waste of scarce money,” and he doesn’t think the proposal being floated from Mr. Sandersand Mr. Menendez is muchbetter.
“Wherever you set that cut off, the largest benefit is going to go to the top of that cut off,” hesaid.
A “handful” of middleclass earners may benefit, he said. They tend to have good, modest incomes and own homes that have appreciated invalue in high-tax areas.
“If you actually cared about that population, you could set the cutoff at say, $150,000. That would still mean the biggest benefit would go to people making $150,000, but it would address that actual middle class population,” he said. “If you’re setting the [cutoff] at $400,000 or $500,000, you’re not doing this for the middle class.”
Both Mr. Sanders’ and Mr. Menendez’s office said the proposal is still being discussed and that the two lawmakers are waiting to hear from the Joint Committee on Taxation.
Customers waiting in the deli line at Donatelli’s Italian Food Center in Bloomfield on Wednesday ordered pulled pork sandwiches (fish was sold out), sausage and other meats — and pondered the market’s future. A woman standing at the bread rack looked especially worried. When owner Russell Donatelli walked past,she asked, “You’re going to close?”
“We’re going to try to stay open as long as we can,” he replied.
His grandfather, Frank Donatelli, and George Rosato opened the store in 1932 on Liberty Avenue, and it quickly became a place where Italian immigrants could go to catch a whiff of the old country and pick up some of the items they remembered eating in Italy. Russell Donatelli represents the third generation of his family to operate the market (his family bought out Rosato in 1960). There is no fourth generation to continue the tradition. Mr. Donatelli is looking for a buyer. The question everyone asks is: Will someone with the resources and commitment to the community step up?
Sandy Falcione awaits an answer. Standing at a butcher block table near the back door, she fed strips of dough into a machine that turned out small pasta shells called cavatelli. She has been performing work like this at Donatelli’s for 28 years. “My great aunt worked here when I first started,” she said. “She worked on this very spot.”
A picture of that great aunt, Rose Acquafondata, is taped to a nearby wall, as is a playful picture of a longtime customer sticking out her tongue. Ms. Falcione knows all the regulars, like Linda Ficorilli, 80, who paused her shopping to sit on the lip of a produce counter and reminisce. Ms. Falcione stood nearby and listened attentively. At one point, the two clasped hands and pondered the potential loss of the market.
“I come here every day,” Ms. Ficorilli said. “I miss it already.”