Opinion | Raising the SALT cap is a really bad idea

The SALT deduction is a regressive tax that makes Biden’s social package worse

Iowa+3rd+Congressional+District-elect+Cindy+Axne+speaks+to+supporters+during+the+statewide+Democratic+candidates+watch+party+at+Embassy+Suites+in+Des+Moines+on+Wednesday%2C+Nov.+4%2C+2020.+

Lily Smith

Iowa 3rd Congressional District-elect Cindy Axne speaks to supporters during the statewide Democratic candidates’ watch party at Embassy Suites in Des Moines on Wednesday, Nov. 4, 2020.

Shahab Khan, Opinions Columnist


When it comes to taxes, Democrats take special pride in the fact that their party advocates for taxing the rich.

It’s strange, then, that President Joe Biden’s Build Back Better package disregards this axiom. In the version of the bill that passed the House of Representatives, moderate Democrats sneaked in a provision that raises the cap of the State and Local Tax, or SALT, deduction from $10,000 to $80,000. The deduction allows wealthy families in these states to write off their state taxes on their federal tax returns.

Senate Democrats should adhere to the advice of Iowa Rep. Cindy Axne and not raise the SALT cap. Better yet, Democrats ought to eliminate the SALT deduction in its entirety and use the revenue generated to improve social programs in the Biden bill.

In blue states like California, New York, and Illinois, tax systems are progressive on paper. Families in higher income tax brackets are supposed to pay more in taxes than lower income families. The SALT deduction creates a loophole which allows these families to circumvent their responsibilities to the federal government.

To push back against this notion that SALT deductions benefit the wealthy, the moderate Democrats from these blue states say that raising the SALT cap is a tax cut for the middle class. The reality is that a person in the middle 60 percent of the income distribution gets a tax break of $37 from the current SALT deduction — compare that to the top 20 percent who could get a tax break of up to $10,000.

Axne hit it right on the head when she advocated that we do not raise the SALT cap, pontifying that raising the cap will benefit the wealthy, not ordinary Iowans.

It is estimated that raising the cap to $80,000 will cost the government $340 billion in lost revenue over a 10-year period, meaning that the revenue that could be generated from doing away with the SALT deduction could be used to extend funding for the social programs of the Build Back Better bill such as the Child Tax Credit, which gives families a refundable tax credit for every kid they have.

Of course, eliminating the SALT deduction overnight could have destabilizing effects on households. To placate these concerns, tax experts from Brookings made a great case that, for two years, Democrats should raise the SALT cap to $20,000 for married couples and keep it at $10,000 for singles.

After those two years, the SALT cap would gradually decrease by $2,000 and $1,000 a year so that, the SALT deduction would be phased out of the tax code by 2032. This would not only provide stability to households that benefit from the SALT deduction but would also raise $90 billion a year in revenue for the government to fund the aforementioned child tax credit.

The current child tax credit expansion, courtesy of the American Rescue plan, has lifted nearly 3 million kids out of poverty over the past year. Extending the tax credit further with the money generated from eliminating the SALT deduction would go a long way in ensuring that children escape destitution for years to come.

As long as I have been alive, Democrats have always taken pride in the fact that they want to use government programs to help people.

However, when moderate Democrats eschew the needs of our most vulnerable in order to appease their wealthy constituents, the hypocrisy of the Democratic party begins to show. If we really want to build back better, we should phase out the SALT deductions.


Columns reflect the opinions of the authors and are not necessarily those of the Editorial Board, The Daily Iowan, or other organizations in which the author may be involved.


 

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