Democrats say wealth­ier house­holds need tax break

Plan to roll back state and lo­cal lim­its

The Washington Times Weekly - - Politics - BY DAVID SHERFINSKI

They crit­i­cized Pres­i­dent Trump’s tax cut bill as a give­away to the rich, but now con­gres­sional Democrats are eyeing their own $620 bil­lion tax break that would go heav­ily to wealth­ier Amer­i­cans.

As they pre­pare to take control of the House, one high pri­or­ity for Democrats from north­east­ern states is to look at rolling back the $10,000 limit on state and lo­cal tax de­duc­tions in­cluded in the Repub­li­cans’ 2017 over­haul of the fed­eral tax sys­tem.

But an­a­lysts say re­peal­ing the state and lo­cal tax limit is worth just dol­lars to the av­er­age mid­dle-class tax­payer. For the wealthy, though, the pro­posal could lower tax bills by tens of thou­sands of dol­lars.

The Tax Pol­icy Cen­ter re­cently found that more than 96 per­cent of the tax cuts that would come from re­peal­ing the cap would go to the top 20 per­cent of house­holds in terms of in­come.

The left-lean­ing In­sti­tute on Tax­a­tion and Eco­nomic Pol­icy con­cluded this month that 63 per­cent of the tax ben­e­fits that would re­sult from ax­ing the cap would go to the rich­est 1 per­cent of tax­pay­ers.

Democrats say those wealthy folks de­serve some re­lief and ar­gue that they were tar­geted be­cause they live in high-tax states where most vot­ers are Democrats.

Rep. Richard E. Neal, the Mas­sachusetts Demo­crat in line to chair the tax-writ­ing Ways and Means Com­mit­tee next year, said the state and lo­cal tax limit should be re­vis­ited as part of an over­all ex­am­i­na­tion of how Repub­li­cans’ law is work­ing af­ter one year.

“In a mea­sured, ju­di­cious way, we should seek tes­ti­mony from a wide va­ri­ety of views as to the tax [law] it­self,” Mr. Neal said re­cently.

But Rep. Kevin Brady of Texas, the out­go­ing Repub­li­can chair­man, said restor­ing the old law would mean a tax cut of about $10 for the mid­dle class. Bills for mil­lion­aire house­holds, Mr. Brady said, would be re­duced by $140,000 a year.

“It is a huge tax cut for the wealthy,” he said. “I do ex­pect them to make a run at it.”

Democrats counter that while the rich may ben­e­fit the most, there are nu­mer­i­cally more mid­dle-class tax­pay­ers who will end up ahead.

They pointed to IRS data that show nearly 90 per­cent of tax­pay­ers who claim the state and lo­cal tax de­duc­tion make less than $200,000.

“It’s a big is­sue in many states across the coun­try. It’s a real whack on mid­dle-class fam­i­lies,” said Sen. Robert Me­nen­dez, New Jersey Demo­crat and a mem­ber of the taxwrit­ing Se­nate Fi­nance Com­mit­tee.

That was the same ar­gu­ment Repub­li­cans used in de­fend­ing their over­all tax cuts, which ben­e­fited nearly all Amer­i­cans — though the wealth­i­est did get more of a cut be­cause they paid more in taxes al­ready.

“Democrats and oth­ers widely de­rided the law af­ter it passed for be­ing a give­away to the wealthy,” said Steve Wamhoff, di­rec­tor of fed­eral pol­icy at the In­sti­tute on Tax­a­tion and Eco­nomic Pol­icy. “Propos­ing to amend the tax law in a way that would pri­mar­ily ben­e­fit the top 1 per­cent con­flicts with the prin­ci­ples [Democrats] de­fined.”

Rep. Earl Blu­me­nauer, Ore­gon Demo­crat and a Ways and Means mem­ber, said Democrats aren’t pledg­ing to re­verse the Repub­li­can tax cuts. He said they are only begin­ning to ex­am­ine the ef­fects of the 2017 law’s changes.

“There’s lots of stud­ies — that’s why you have hear­ings,” said Mr. Blu­me­nauer. “There are lots of peo­ple who have big prop­erty tax bills in red states who are go­ing to get sur­prised … and most of them are Repub­li­cans. There are more Repub­li­cans than Democrats in this coun­try that are net losers.”

Democrats also say peo­ple are miss­ing the big pic­ture if they are look­ing only at the raw in­come dis­tri­bu­tions of who stands to ben­e­fit di­rectly from fully restor­ing the de­duc­tion.

“That’s one side of the story — elim­i­nat­ing the cap would ben­e­fit high-in­come peo­ple,” said Frank Sam­martino, a se­nior fel­low at the Tax Pol­icy Cen­ter. “From the states’ point of view, the other side of the story is this could jeop­ar­dize their abil­ity to raise rev­enues, which are used for pur­poses that ben­e­fit low- and mod­er­ate-in­come fam­i­lies.”

Un­der the state and lo­cal tax de­duc­tions, in­di­vid­u­als can deduct up to $10,000 from their fed­eral re­turns for a com­bi­na­tion of lo­cal taxes. Those can in­clude prop­erty taxes and ei­ther in­come or sales taxes paid.

Repub­li­cans had long eyed the tax break as a per­verse in­cen­tive to raise taxes, say­ing some law­mak­ers hike their own state and lo­cal rates with the knowl­edge that their res­i­dents could shift some of the bite to Un­cle Sam.

Elim­i­nat­ing the 2017 state and lo­cal tax limit would punch a $620 bil­lion hole in gov­ern­ment fi­nances over the next decade, ac­cord­ing to a Tax Pol­icy Cen­ter es­ti­mate.

Democrats do have op­tions for cover­ing that short­fall.

Sen. Chris Van Hollen, Mary­land Demo­crat, pushed an amend­ment dur­ing the tax de­bate last year that would have paid for restor­ing the de­duc­tion by in­creas­ing taxes on money that cor­po­ra­tions park over­seas.

Mr. Van Hollen said an­other op­tion would be to en­act the “Buf­fett Rule,” a min­i­mum tax on the wealthy pushed by Pres­i­dent Obama.

“There are ways you can ad­dress the is­sue and make sure you re­cap­ture some of the in­come to the ex­tent it’s go­ing to very wealthy peo­ple,” Mr. Van Hollen said. “That’s one of our prin­ci­ples: is that we shouldn’t be pro­vid­ing big tax breaks to mil­lion­aires and we can ac­com­plish that with­out hurt­ing mid­dle-class tax­pay­ers.”

Tom Mali­nowski, a Demo­crat who won a House seat from New Jersey, said he has a pledge from Rep. Nancy Pelosi of Cal­i­for­nia, Democrats’ House leader, to ad­dress the state and lo­cal tax is­sue next year. Mr. Mali­nowski said that pledge was cru­cial to get­ting him to sup­port Mrs. Pelosi’s bid to be­come speaker of the House.

Mr. Mali­nowski won his seat by oust­ing Rep. Leonard Lance, a Repub­li­can who voted against his party’s tax law be­cause he didn’t sup­port the $10,000 cap.

The ar­ti­cle is based in part on wire ser­vice re­ports.

AS­SO­CI­ATED PRESS PHO­TO­GRAPHS

Rep. Richard E. Neal, who is in line to chair the tax-writ­ing Ways and Means Com­mit­tee next year, said the state and lo­cal tax limit should be re­vis­ited af­ter one year.

Rep. Kevin Brady, the out­go­ing House Ways and Means Com­mit­tee chair­man, said restor­ing the old law would mean a “huge tax cut for the wealthy.”

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