Democrats’ $275 Billion Tax Break for the Rich
– By Howard Sierer –
Hidden away in the progressive’s $4.1 trillion Build Back Better (BBB) legislation was a $275 billion tax break for the wealthiest 20% of Americans, primarily benefitting elites living on the coast. With BBB dead for now, watch for Democrats to find an opportunity to attach it to another bill in 2022.
Progressive priorities are on glaring display: rewarding their wealthy coastal donors was the second most expensive item in the BBB they claimed was intended to benefit the poor and the middle class. Their hypocritical tag line in selling the bill: “Make the rich pay their fair share.”
The White House had the gall to promote the bill by saying, “But for too long, the economy has worked great for those at the top, while working families get squeezed. President Biden promised to rebuild the backbone of the country – the middle class – so that this time everyone comes along.”
C’mon Joe, how could you say that with a straight face?
The Republican 2017 tax reform legislation doubled the standard deduction, greatly simplifying tax returns for 80% of us. Only the 20% with high incomes benefit from itemizing deductions.
Before tax reform, this 20% could claim all their state and local taxes (SALT) as deductions. This clearly benefitted the wealthy in high tax states, the coastal elite for the most part.
As those states raised taxes, federal taxes for the wealthy were reduced by up to 40% of the state increase, giving Democratic state legislatures little incentive to control spending. But the loss of federal revenue required the rest of the country in effect to subsidize these high spending, high tax states.
Republicans put an end – well, almost – to this patently unfair practice. Their tax reform legislation limited the deduction to $10,000. I argued for no SALT deduction, which would allow even lower federal tax rates for all of us.
The Republican cap on the SALT deduction has chafed Democratic politicians from high tax states and their wealthy donors for the last four years. Fishing for arguments to defend their proposed handout for the rich, some Democratic politicians argued that without a higher deduction, they will continue to lose high-income taxpayers to low tax states.
That’s a self-inflicted wound. According to the Annual 2021 United Van Lines survey, the top five states with the highest percentage of move-outs versus move-ins are in order New Jersey, Illinois, New York, Connecticut and California.
What do all these high-tax states have in common? Democratic governors and state legislatures which epitomize the party’s tax-and-spend mentality. From my perspective, their voters get the expensive social programs they seem to want and they’re welcome to them; just don’t expect the rest of us to subsidize them.
Texas Republican Sen. John Cornyn summed up the feelings of his fellow Republican senators. “My 29 million constituents in Texas are not interested in subsidizing bad governing decisions made in places like New York or San Francisco, and they shouldn’t have to.”
The Democrat-controlled House of Representatives passed BBB 220-213 on a strict party-line vote: no Republicans voted for the bill. Once again Speaker Nancy Pelosi kowtowed to her party’s progressive wing to avoid a public split.
But in doing so, she has exposed her party’s moderates, especially those from swing districts, to readymade attacks from their Republican opponents in next fall’s elections. With their razor-thin margins in both the House and Senate coupled with Pres. Biden’s low and sinking opinion poll approval ratings, Democrats have chosen to go for all they can now, including the hard-to-justify tax break for the wealthy.
Senate Democrats including Vermont’s Bernie Sanders, New Jersey’s Bob Menendez and Colorado’s Michael Bennet, are bickering with each other over how to restructure the SALT provision to make its possible resurrection more palatable to voters. Reflecting their mixed emotions, the last BBB draft released by Senate Finance Committee Chairman Ron Wyden contained no language on the SALT provision. Instead it read, “PLACEHOLDER FOR COMPROMISE ON DEDUCTION FOR STATE AND LOCAL TAXES” under the SALT subheading.
Colorado’s Sen. Bennet summed up his feelings – and my feelings – when he said, “The [expanded] child tax credit [costs] $190 [billion] versus $275 billion for SALT. I do think that it raises the question about what our priorities really are.”
When you hear Democrats whining about this or that program that Republicans scuttled with the demise of the BBB, remember that losing the tax break for their rich donors is near the top of their list.
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