House Democrats feeling the heat on ‘SALT’ cap rollback
Democrats still haven’t touched the cap on state and local tax deductions
It’s been almost a year since Democrats assumed control of the House, and they still haven’t touched the cap on state and local tax deductions imposed by the GOP Congress and President Donald Trump that disproportionately affect blue state districts.
That’s starting to become a problem for the dozen or so freshman Democrats who flipped GOP seats after campaigning in part on getting rid of that $10,000 “SALT” limit, which was included as an offset for the 2017 tax code overhaul.
[SALT Still Rubs the Democrats’ Tax Wounds]
But the House Ways and Means Committee hasn’t yet figured out how to deal with a double-barreled problem: their chamber’s pay-as-you-go rule requiring that tax cuts be deficit-neutral, as well as distribution tables from independent analysts showing the benefits would overwhelmingly flow to the richest households.
“We have to have a SALT vote,” said Rep. Donald S. Beyer Jr., a Virginia Democrat on Ways and Means. “It doesn’t have to be by Christmas, although it would be great to have it by Christmas.”
The bill would die in the Senate, but Democrats ran on this issue, Beyer noted. “We may sadly have to admit that in this particular Congress, it’s a message bill,” he said.
[Senate rejects repeal of state and local tax deduction cap rule]
Rep. Bill Pascrell Jr., D-N.J., one of the committee’s loudest voices urging a SALT repeal, says legislation that committee Democrats have been privately debating is written and will likely be released during the first half of December.
The bill would probably repeal the SALT cap for three years, paid for largely by returning the top marginal income tax rate to 39.6 percent, Pascrell said. That rate was reduced to 37 percent and applies to individuals with taxable income above $510,300 and joint filers making more than $612,350 in 2019.
Other panel members said the legislation hasn’t been settled on yet, however. “There will be pressure to have a pay-for, and there’s a lot of discussion about a pay-for,” said Rep. Dan Kildee, D-Mich. This is an argument among Democrats, though. Kildee noted that Republicans passed expensive tax cuts in 2017 without paying for them. “They sort of excused themselves from the table on that conversation,” he said.
The question on offsets could divide Democrats between deficit hawks and those in vulnerable districts who might be reluctant to vote for tax increases.
“I think that it depends on whether we put it forward with a pay-for,” Beyer said. “On the one hand, that will please the Blue Dogs,” a fiscally conservative caucus within the party. “On the other hand, it might make it a little harder for some of the front-liners to vote for a tax increase.”
Democrats argue it was a cynical ploy for Republicans to target the SALT deduction to partially pay for the 2017 tax law, and that argument is corroborated by data showing that Democrats represent districts hardest hit by the limitation of the deduction.
SALT-iest districts
The Urban-Brookings Tax Policy Center ranked the 435 congressional districts on the percentage of households claiming the SALT deduction in 2016. Nineteen of the top 20 districts are represented by Democrats.
Of the top 50 districts with households claiming SALT deductions before the limit was imposed, 14 of them are represented by freshmen Democrats, most of whom have signed on to legislation to repeal or raise the cap in some form. The smallest average SALT deduction among those members’ districts in 2016 was $10,032, in Virginia’s 7th District represented by Abigail Spanberger. The largest was $27,027 in California’s 48th District, which Harley Rouda now represents.
It’s not about money for all Democrats, says Kildee, whose district includes Flint and ranked 359th on the Tax Policy Center list.
“Fairness really does come into the conversation,” he said. “What the Republicans did on SALT was not fair, clearly targeting states that the president decided to target.”
Pascrell and Rep. Mike Thompson, D-Calif., who is leading the SALT effort, said in September that they hoped to have a bill ready for a committee markup in October. That timetable has since slipped. Neither Thompson’s nor House Ways and Means Chairman Richard E. Neal’s offices immediately responded to a request for comment.
Rep. David Schweikert, R-Ariz., a Ways and Means Republican, said the delays indicate that Democrats are realizing repeal would be a tough vote for them.
“You can’t engage in the rhetoric of saying we want the wealthy to pay more: ‘Oh, by the way, we’re going to make sure the wealthy get the biggest tax deduction possible.’ You can’t have it both ways,” he said.
The Joint Committee on Taxation estimated earlier this year that of 13.1 million households that would benefit from repeal of the SALT cap, 62 percent earn more than $200,000; of the total dollar benefits, 94 percent would flow to households earning above that threshold. Millionaires and billionaires would claim more than half the total dollar benefit, the JCT reported.
Even raising the top marginal tax rate as an offset would still deliver large benefits to the well-off, according to a Tax Foundation analysis that found the top 1 percent of earners would see the biggest increase in after-tax income.
Democrats argue that the deduction limitation also hits middle-income households. According to IRS data for 2017, about 55 percent of households earning between $50,000 and $200,000 claimed SALT deductions that year.
Republicans have been making the argument that SALT deductions mostly benefit the rich since Democrats started their effort to repeal the limitation right after the 2017 bill passed, Pascrell said.
“They tried that in the beginning, that ain’t gonna scare us,” he said. “It’s double taxation to begin with.”
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