The Democrat-controlled House Ways and Means Committee will consider legislation that would roll back the Tax Cuts and Jobs Act (TCJA) by eroding the law’s $10,000 cap on state and local tax (SALT) deductions. While Democrats claim they care about the middle class, they are instead focusing on legislation that exclusively benefits their wealthy blue-state constituents.
The Democrat legislation would temporarily raise the SALT cap for married couples to $20,000 in 2019, and then fully repealing the new cap in 2020 and 2021. Starting in 2022, the SALT cap would revert back to $10,000, although Democrats would likely push to extend the $20,000 cap for the next decade. Democrats would also raise the top tax rate from 37 percent to 39.6 percent and lower the income threshold for inclusion in the top bracket.
Before the TCJA, taxpayers could deduct an unlimited amount of state and local taxes from their federal tax returns, a provision that mainly benefited the wealthy blue states. Technically, a New Yorker with a $20,000 state tax bill had access to the same SALT deduction as a Nebraskan with a $5,000 state tax bill. In a pre-TCJA world, the Nebraskan would take the standard deduction instead of the SALT deduction, while the New Yorker would itemize and take the full SALT deduction. This creates a de facto subsidy for blue states.
Democrats are eager to repeal the SALT cap because it would be a windfall for their wealthy blue-state constituents. The unlimited deduction effectively created two different federal tax rates: one for the wealthy in blue states, and one for the middle class in red states.
A recent report from the nonpartisan Joint Committee on Taxation shows that repealing the SALT cap would cut $40 billion in taxes for millionaires. In total, 94 percent of the tax breaks generated from ending the cap would be enjoyed by taxpayers making more than $200,000 a year.
This stunt is another step in the left’s campaign to undermine President Trump, only this time, Democrats are enabling their blue-state constituents to commit federal tax arbitrage. New York Governor Andrew Cuomo attempted an end-run around the cap by allowing New Yorkers to pay their local property taxes into a state-run charitable fund. Senate Minority Leader Chuck Schumer recently forced 41 fellow Democrats to vote to overturn the SALT cap.
The Trump administration and Republicans in Congress have rightfully defended the TCJA from Democrat attacks –– the IRS recently issued new rules and guidance to stop these blue-state schemes.
The TCJA has been successful for Americans across the country. A family of four with annual income of $73,000 is seeing a 60 percent reduction in federal taxes, totaling more than $2,058. Over 23 million families have benefited from the TCJA’s double child tax credit, and nearly 5 million families have not had to pay the onerous Alternative Minimum Tax thanks to the TCJA. GDP and wage growth also remain robust since Trump signed the TCJA into law.
Democrats prove their hypocrisy in their constant battle to sabotage the TCJA. While Democrats claim to be the party of the middle class, they are fighting to dismantle the very law that gave 90 percent of middle class Americans a tax cut. While Democrats claim they want to raise taxes on the wealthy, they are fighting tooth and nail to deliver a massive windfall for their wealthy blue-state constituents.
Ultimately, this Democrat SALT bill proves that the left will stop at nothing to undercut the Trump economic agenda.