Is SALT Kosher? Democrats’ Favorite Tax Cut for the Rich

Speaker Ryan (R-WI), a major proponent of the reduction and elimination of the State and Local Tax deduction.

In a 2017 reconciliation bill, Congress imposed a strongly progressive tax increase on the wealthiest Americans, which was unanimously opposed by the minority opposition. In a bygone era of income-polarized politics, one might have expected Democrats to support such an increase while Republicans vehemently opposed it (McCarty et al.). Instead, it was proposed by Speaker Paul Ryan (R-WI) while Democrats in the House and Senate made the increase a target for their (wildly successful) 2018 campaigns (Enten). The increase came in the form of a cap on the esoteric SALT deduction, but what does the deduction actually do, and why are Democrats from Katie Porter to Nancy Pelosi so eager to see it restored?

What is the SALT deduction?

The State and Local Tax (SALT) deduction was the highest profile victim of the Trump-era Republican Party's only significant piece of legislation before the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act. It was reduced in scale in order to offset the deficit-exploding Tax Cuts and Jobs Act (TCJA) and has been a mainstay of Democratic discourse since. Originally created in 1862, and reinstated along with the income tax after the ratification of the 16th amendment, the deduction allows taxpayers who itemize (about 13% of almost exclusively high income filers) to write off state and local taxes on their federal taxes (McClelland). Trump’s bill capped the amount that taxpayers were allowed to write off at $10,000, and the brunt of this increase was born by high-tax, high-productivity Blue states like California, a point House Democrats seized upon in the 2018 Blue Wave; however, despite Democratic claims to the contrary, the SALT deduction is an extraordinarily regressive handout to the very richest Americans. The progressive Center on Budget and Policy Priorities reports that the top 20% of households would receive 96% of the benefit, with the top 1% seeing over 50% of that money (Marr et al.). Additionally, although Democratic politicians like Majority Leader Schumer and Governor Cuomo have insisted that the TCJA inflicted undue hardships on Blue states, only 5% of Americans actually saw their taxes go up, with 65% receiving an average tax cut of $2,000 (Tax Policy Center). The real victims of the TCJA were the deficit and income equity,  not high-income suburban professionals, and efforts to paint it as such are disingenuous at best (Pulliam and Reeves). While the TCJA was an extremely regressive bill, it still remains only a third as regressive as the SALT deduction .

Why do Democrats support it?

No Democrat would like to see the TCJA repealed entirely — tax cuts for the middle class (households making between $40,000–$120,000 per year) such as the increase to the Standard Deduction are too popular to remove — yet many have falsely singled out the SALT cap provision as especially pernicious. To be clear, not all Democrats support the restoration of the SALT deduction: Alexandria Ocasio-Cortez (D-NY), the standard bearer for the furthest left faction of the institutional Democratic Party, voted with Republicans against its re-institution in 2019 (Post Editorial Board). However, the Progressive Caucus did not follow her example, with the rest of the “Squad”, as well as Wesleyan’s representative Rosa DeLauro (D-CT), voting to restore it. DeLauro’s office did not follow up on a request for comment, but it shouldn’t come as a surprise: the median Wesleyan family has a household income of $192,400, placing them in the 95th household income percentile and in a position to massively benefit from a SALT cap repeal (The Upshot). The bill died in the Senate, with only Wesleyan alumnus Michael Bennet (D-CO) and perennial wingnut Rand Paul (R-KY) breaking with their respective party lines. Democrats are understandably afraid that if they do not follow through with their 2018 promises, they will be punished in the ’22 midterms — however, these fears may be overplayed. The party is losing ground with Hispanic, Black and working-class White voters, not rich suburbanites (Levitz), and a restoration of the SALT deduction would do nearly nothing for these communities (Tax Policy Center). Instead of pushing tax cuts for the wealthy, Democrats should take advantage of an opportunity to use a revenue generator supported by Republicans to offset new spending, not new cuts.

Where should the money go instead?

While Republicans have nearly unanimously opposed the elimination of the SALT cap, the GOP, with its dearth of non-culture war policy positions (it forwent a policy platform for the 2020 election in lieu of recycling the 2016 version), has been unwilling or unable to support entirely eliminating the SALT deduction. One exception to that rule has been Senator Mitt Romney (R-UT), one of the earliest supporters of direct stimulus payments (Grunwald) and proponent of a new plan to massively expand the Child Tax Credit (CTC) at the expense of what remains of the deduction (Matthews). At the time this article was written, President Biden had just signed into law the largest expansion of the CTC in history, financing it entirely with deficit spending instead of raising taxes (preferable, with interest rates near negative). However, that expansion is only temporary, and when it expires in 2022 it may be worth re-examining Sen. Romney’s plan. The plan would fully eliminate the SALT deduction, using those savings to create a much larger, refundable and permanently expanded CTC, directly attacking child poverty instead of keeping money in the hands of the richest Americans. The plan is less generous than Biden’s — it finances the remainder of the expansion by cutting redundant welfare programs like Temporary Assistance for Needy Families (TANF) and Low Income Home Energy Assistance Program (LIHEAP) — but either would create extraordinary change in the lives of millions of low-income parents.

Why tax the upper class?

The crux of any opposition to the full restoration of SALT relies on the basic idea that rich Americans don’t pay enough in taxes. As much as Democrats may espouse that view, they have been extremely hesitant to touch any but the very wealthiest, severely limiting the scope of their policy ambitions. Joe Biden has promised not to raise taxes on individual incomes lower than $400,000 (the top 1.8%) (Rubin); Elizabeth Warren would have paid for her Medicare for All proposal with taxes only on the top 1% and corporations. Progressives should instead follow the lead of Sen. Bernie Sanders (I-VT), who has supported large tax increases on the middle and upper classes in order to pay for welfare expansion (Frazin), and reject the false narrative that forcing the top 20% to pay OECD average tax rates is somehow regressive (The Committee for a Responsible Federal Budget). If the United States is ever to emulate Scandinavian prosperity, we’ll need to levy Scandinavian taxes to pay for it — starting with the “New American Aristocracy” (Stewart). With the passage of the $1.9T American Rescue Plan, the era of “the era of big government is over” is over (Krugman), and there’s no reason not to ask the wealthiest class of the wealthiest country in the history of the planet to pay their fair share.

Works Cited:

The Committee for a Responsible Federal Budget. “Is the U.S. the Highest Taxed Nation in the World?” Committee for a Responsible Federal Budget, 22 July 2016, https://www.crfb.org/blogs/us-highest-taxed-nation-world. Accessed 12 March 2021.

Enten, Harry. “Latest House results confirm 2018 wasn’t a blue wave. It was a blue tsunami.” CNN, 6 December 2018, https://www.cnn.com/2018/12/06/politics/latest-house-vote-blue-wave/index.html. Accessed 12 March 2021.

Frazin, Rachel. “Colbert questions Sanders on middle-class tax hike after pressing Warren on the same topic.” The Hill, 27 September 2019, https://thehill.com/homenews/campaign/463425-colbert-questions-sanders-on-middle-class-tax-hike-after-pressing-warren-on. Accessed 12 March 2021.

Grunwald, Michael. “Washington Learns to Love ‘Money for Everyone.’” Politico Magazine, March 17 2021, https://www.politico.com/news/magazine/2020/03/17/coronavirus-stimulus-money-washington-mitt-romney-tom-cotton-sherrod-brown-134525. Accessed 12 March 2021.

Krugman, Paul. “Ending the End of Welfare as We Knew It.” The New York Times, 11 March 2021, https://www.nytimes.com/2021/03/11/opinion/biden-covid-relief-welfare.html. Accessed 12 March 2021.

Levitz, Eric. “David Shor’s Postmortem of the 2020 Election.” Intelligencer, 13 November 2020, https://nymag.com/intelligencer/2020/11/david-shor-analysis-2020-election-autopsy-democrats-polls.html. Accessed 12 March 2021.

Marr, Chuck, et al. “Repealing “SALT” Cap Would Be Regressive and Proposed Offset Would Use up Needed Progressive Revenues.” Center on Budget and Policy Priorities, 2019, https://www.cbpp.org/research/federal-tax/repealing-salt-cap-would-be-regressive-and-proposed-offset-would-use-up-needed. Accessed 12 March 2021.

Matthews, Dylan. “What Democrats can learn from Mitt Romney.” Vox, 23 February 2021, https://www.vox.com/future-perfect/22280404/mitt-romney-child-allowance-tax-credit-biden. Accessed 12 March 2021.

McCarty, Nolan, et al. “Political Polarization and Income Inequality.” Russell Sage Foundation’s Inequality Project at Princeton, 2002, https://pdfs.semanticscholar.org/1b21/c946bc339dcd10a7a1c2471da0ceff031781.pdf?_ga=2.99694622.1015284061.1615307801-1424543530.1615307801. Accessed March 12 2021.

McClelland, Robert. “Anybody Can Itemize Their Deductions. But Most Don’t Want To.” Tax Policy Center, Brookings Institute, 2019, https://www.taxpolicycenter.org/taxvox/anybody-can-itemize-their-deductions-most-dont-want. Accessed 12 March 2021.

Post Editorial Board. “AOC is right to stand up to Democratic establishment on SALT.” The New York Post, 20 December 2019, https://nypost.com/2019/12/20/aoc-is-right-to-stand-up-to-democratic-establishment-on-salt/.

Pulliam, Christopher, and Richard Reeves. “The SALT tax deduction is a handout to the rich. It should be eliminated not expanded.” Brookings, 4 September 2020, https://www.brookings.edu/blog/up-front/2020/09/04/the-salt-tax-deduction-is-a-handout-to-the-rich-it-should-be-eliminated-not-expanded/. Accessed 12 March 2021.

Rubin, Richard. “Why Biden Would Start Tax Increases at $400,000 a Year.” The Wall Street Journal, 3 October 2020, https://www.wsj.com/articles/why-biden-would-start-tax-increases-at-400-000-a-year-11601730000. Accessed 12 March 2021.

Stewart, Matthew. “The 9.9 Percent Is the New American Aristocracy.” The Atlantic, no. June 2018, 2018, https://www.theatlantic.com/magazine/archive/2018/06/the-birth-of-a-new-american-aristocracy/559130/. Accessed 12 March 2021.

Tax Policy Center. “Racial Disparities and the Income Tax System.” TaxPolicyCenter.org, Tax Policy Center, 2020, https://apps.urban.org/features/race-and-taxes/#state-and-local-taxes. Accessed 12 March 2021.

Tax Policy Center. “T18-0026 - The Tax Cuts and Jobs Act (TCJA): All Provisions and Individual Income Tax Provisions; Tax Units with a Tax Increase or Tax Cut, by Expanded Cash Income Level, 2018.” Tax Policy Center, Brookings Institute, 2018, https://www.taxpolicycenter.org/model-estimates/individual-income-tax-provisions-tax-cuts-and-jobs-act-tcja-february-2018/t18-0026. Accessed 12 March 2021.

The Upshot. “Economic diversity and student outcomes at Wesleyan University.” The New York Times, 2017, https://www.nytimes.com/interactive/projects/college-mobility/wesleyan-university. Accessed 12 March 2021.