WASHINGTON — A plan by House Democrats to reduce taxes for high earners in states like New Jersey, New York and California in their $1.85 trillion social policy spending package is becoming an early political albatross for the party, with Republicans already mobilizing to accuse Democrats of defying their populist principles in favor of cutting taxes for the rich.
The criticism offers a preview of the emerging battle lines ahead of next year’s midterm elections and underscores the challenge that Democrats face when local politics collide with the party’s national ambitions to promote economic equity. Republicans who defended 2017 tax cuts that overwhelmingly benefited the rich see the Democratic proposal to increase the limit on the state- and local tax deduction as an opportunity to change the script and cast Democrats the party of plutocrats.
“I think they’re struggling to maintain their professed support for taxing the wealthy, yet they are providing a huge tax windfall under the SALT cap,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, referring to the acronym for state and local taxes. “If your priorities are working families, make that the priority, not the wealthy.”
Republicans, seeking to finance their tax cuts, set a $10,000 ceiling on the amount of state or local taxes that households could subtract from their federal tax bills. Democrats from high-tax states such as New York, New Jersey, and California have been promising to repeal the cap for years. They are now poised to raise it to $80,000 by 2030 before reducing it to $10,000 in 2031. The cap, which is set to disappear in 2025 and then go away permanently in 2032, is currently in place.
The Senate is likely to alter the House proposal. It has its own champions, as well as its detractors. Senator Chuck Schumer (Democrat of New York) has embraced a larger deduction, while Senator Bernie Sanders (Vt. independent) has sharply criticized it. He joined Senator Bob Menendez, Democrat of New Jersey, in negotiating an income cap — as high as $550,000, though that number is in flux — on who can receive the deduction.
The National Republican Congressional Committee released poll data this week. It found that voters in battleground states are less likely to vote in Democrats who support tax cuts for rich homeowners in New Jersey and California. It said that the Democratic Party would have “to defend its politically toxic policies which penalize hard working families to reward liberal elites.”
Prominent budget and tax analysts argue that the increase in the deduction is an unneeded giveaway for the wealthy.
According to the nonpartisan Committee for a Responsible Federal Budget a Washington family of four making $1 million per annum would receive 10x as much tax relief from expanding the state- and local tax deduction next year as a middle class family would receive from a provision in the social package, the expansion of child tax credit. According to calculations by the Urban-Brookings Tax Policy Center nonpartisan, two-thirds (or more) of households that earn more than $1million a year would see their taxes cut due to the legislation’s increase in the state- and local property tax deduction.
Some Democrats are on the defensive because of this proposal.
Rep. Jared Golden, Democrat from Maine, stated this week tax giveaways to millionaires sounded just like something Republicans would have created.
“Proponents have been saying that the BBB taxes the rich,” Mr. Golden said on TwitterThe bill is known as the Build back Better Act. “But the more we learn about the SALT provisions, the more it looks like another giant tax break for millionaires.”
This issue is further complicating the passage process of the bill. Democrats are trying hard to get the bill through both the House (and Senate) without Republican support. Because of their small majority in both chambers, Democrats cannot afford to lose more than three votes in each chamber.
Some Democrats from high tax states have made the inclusion more generous deduction a condition for backing the bill.
“There’s a series of competing views on SALT, but I mean, it’s pretty obvious something has to be in there, that’s for sure,” said Representative Richard E. Neal of Massachusetts, the chairman of the House Ways and Means Committee.
The unexpectedly tight race for governor of New Jersey was a clear reminder that the state’s high property taxes — and the limit on their deductibility — are high on voters’ lists of worries, strategists and other political observers said.
“As Covid kind of recedes, taxes are taking its place as the top issue in New Jersey,” said Michael DuHaime, a Republican political strategist with Mercury Public Affairs.
The SALT cap “essentially resulted in a pretty large tax increase for a lot of families” in the suburbs of New York City, Mr. DuHaime said. He stated that homeowners can count on some relief with Democrats in power.
Now that former President Donald J. Trump is out of office, New Jersey has “reverted to its mean” of being deeply concerned about the state’s affordability, said Julie Roginsky, a strategist who advised Gov. Democrat Philip D. Murphy in his first campaign in 2017. She stated that the average homeowner in New Jersey pays approximately $10,000 in property taxes. The cap is only applicable to about one-third the residents of New Jersey.
“I think it’s absolutely a line in the sand that some of these vulnerable members of Congress need to draw,” Ms. Roginsky said.
According to strategists, several Democrats who represent suburban areas with high property taxes and homeowners who pay more than $10,000 per annum will face stiff opposition in the midterm elections next year. Their short list of vulnerable House Members includes Josh Gottheimer and Mikie Sherrill from North Jersey and Tom Malinowski, who represent part of the Jersey Shore. All of them support raising the SALT limit.
Ms. Roginsky stated that if the Democrats can change the SALT deduction to retroactively cover 2021 taxes, incumbents can campaign on having provided tax cuts. But if they fail, their Republican opponents — like Thomas Kean Jr., a state senator who is challenging Mr. Malinowksi — will be able to use that against them, she said.
“It may not play well in Vermont or in Alexandria Ocasio-Cortez’s district, but if you’re Nancy Pelosi, you understand that the road to your majority runs through places like suburban New Jersey and suburban California and suburban New York,” Ms. Roginsky said.
Biden’s Social Policy Bill at a Glance
A proposal in flux. President Biden’s social safety net and climate bill is back on hold, though the House plans to vote on the $1.85 trillion spending plan the week of Nov. 15. The details are still being worked out, but here’s a look at some key provisions:
Ben Dworkin, director of the Rowan Institute for Public Policy and Citizenship, Rowan University in Glassboro (N.J.), cited the surprisingly close race for New Jersey governor this yea. He noted how effective Mr. Murphy’s challenger, Jack Ciattarelli, was in playing to voters’ feelings about the state’s high taxes.
“He hammered home that issue,” Mr. Dworkin said.
Public polling leading up to that election showed that affordability in general was the “top issue” in the state, he said.
“From an elected official standpoint, anything you can do to alleviate the pressure of taxes, as a change in the SALT cap would do, is a huge benefit,” Mr. Dworkin said.
Jon M. Bramnick – the minority leader in State Assembly – said that he would support tax relief for New Jersey residents, even though he is one of the most powerful Republicans in the state.
“If Gottheimer and Mikie Sherrill and the others stand up to the Republicans and get it done, I’ll say I’m with them and I’m proud of their work,” Mr. Bramnick said.
In an interview, Mr. Gottheimer stated in that people had been moving away from New Jersey because the cap of the deduction meant an increase on the cost to live. He denied that lifting the cap meant a tax cut for the wealthy and said that this was not the case in his State.
“My job is to fight for my district, and again if other states or districts don’t want it they don’t have to take it,” Mr. Gottheimer said. “If you come to my state, this is an existential threat.”
However, the economic impact of the cap on high-tax states isn’t as clear as those who support it.
Professor of law at the University of Chicago Daniel Hemel, who has been studying taxes extensively, claimed that millionaires would be subject to higher taxes under the current proposal.
He said that liberals should be concerned about the law’s potential impact on rich people, but he also said that Republicans were being disingenuous with their attacks due to the structure of their $1.5 billion tax cut four years back.
“I think any Republican who voted for the 2017 tax law loses the ability to criticize liberals for regressive tax policy,” Mr. Hemel said.
Emily CochraneContributed reporting
Source: NY Times