Congressional Republicans who backed the 2017 Trump tax cuts for the rich are already attacking Democrats over one provision in a bill that, in most respects, will raise taxes on the wealthy.
A group of Democrats from high-tax states, led by Reps. Josh Gottheimer of New Jersey and Tom Suozzi of New York and backed by House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer, pushed to insert a provision in the House version of the Build Back Better package that would roll back a $10,000 cap on the state and local tax (SALT) deduction — effectively a tax break that overwhelmingly favors the wealthy. But an analysis by the nonpartisan Joint Committee on Taxation found this week that the overall package would increase taxes on millionaires by more than 3 percentage points. Furthermore, Senate Democrats are clamoring to “fix” the House-passed bill, which raises the cap to $80,000, to reduce the windfall to the wealthy.
Republicans who supported the Trump tax cuts, which expanded the federal deficit by $2 trillion while showering tax breaks on the top 1% of earners, are already running ads ahead of the 2022 midterms attacking Democrats for cutting taxes on the rich — in a bill that has not even passed the Senate.
Rep. Jason Smith, R-Mo., the top Republican on the House Budget Committee — who backed the Trump tax cuts — rolled out a new ad this week calling SALT the “Democrats’ way of giving the rich a tax cut.” This blatantly hypocritical attack line has been echoed in other circles of the GOP.
The Republican National Committee, which supported the Trump tax cut, last week blasted out a statement calling out the Democrats for trying to “give tax cuts to the wealthy.” National Republican Senatorial Committee Chairman Rick Scott, R-Fla., an ardent supporter of the 2017 tax gift to the wealthy, vowed to make sure that all states know about how much money Democrats “are going to give to rich people.” Republican-aligned groups, including the Heritage Foundation, are also running ads attacking Pelosi for slipping a “big tax break for her wealthy friends” into the bill.
These attacks mark a dizzying turnaround for the party that just four years earlier voted to give the top 1% of earners an average tax cut of $278,000, according to a recent analysis. The 2017 Republican tax law included the SALT cap, which Democrats from high-income, high-tax states argued was a “punitive” measure aimed at hurting blue states. Democrats like Gottheimer and Suozzi pushed to repeal the cap entirely but ultimately agreed on a proposal to raise the cap to $80,000 per year.
But these Republican attacks also underscore the Democrats’ messaging problem ahead of a challenging 2022 midterm campaign. Economists from both sides of the aisle agree that the party’s SALT proposal is a regressive tax cut that would disproportionately benefit the top 5% of earners. The House proposal appears to have little chance of passing the Senate in its current form, where even Democrats from Gottheimer’s home state of New Jersey have lambasted it as a windfall for “millionaires and billionaires.”
“This bill should invest in our families and our future — not provide giveaways for the wealthy few,” Sen. Michael Bennet, D-Colo., said earlier this month. “The House’s SALT proposal cuts taxes for millionaires and billionaires on the backs of low-income and middle-income families. We should fix this in the Senate.”
“I think it gives tax breaks to the wrong people: Rich people,” complained Sen. Jon Tester, D-Mont.
Senate Budget Chairman Bernie Sanders, I-Vt., has teamed up with Sen. Bob Menendez, D-N.J., whose state would disproportionately benefit from a SALT cap rollback, to reduce the benefits to millionaires.
Menendez said their proposal would “allow the full deductibility to middle-class working families, but it won’t go to those making over a million dollars. And therefore, the issue of millionaires and billionaires getting this tax deduction is not an issue.”
The proposal would eliminate the SALT cap entirely for those earning less than $400,000 to $550,000 per year, which would likely still be a regressive tax cut, but would maintain the $10,000 cap in place for those earning more.
“In terms of SALT, we must protect the middle class from high local and state taxes,” Sanders tweeted last week. “But we cannot provide 39% of the benefits to the top 1% — as is in the House bill. At a time of massive income inequality, we must increase taxes on the 1%, not give them huge tax breaks.”
The Sanders-Menendez plan “costs less than a third as much as repealing the cap fully and is much less regressive,” said Steve Wamhoff, director of federal tax policy at the progressive-leaning Institute for Taxation and Economic Policy.
Democrats initially planned to pay for much of the Build Back Better package by rolling back the Trump tax cuts on corporations and the wealthy. Sen. Kyrsten Sinema, D-Ariz., killed that plan, but the current version still includes a 15% corporate minimum tax on big corporations and a surtax on those earning over $10 million. An analysis by the JCT found that the average tax rate for millionaires under the bill would increase by 4.1 percentage points in 2023 and 3.3 percentage points in 2025. But progressives are warning that the inclusion of the SALT cap rollback favorin g the wealthy could be suicidal for a party facing its most difficult midterm election cycle in a decade.
“I’m not worried about the perception that we’re doing too much for wealthy people. I’m worried that we may do too much for wealthy people. It’s the reality that troubles me,” Sen. Elizabeth Warren, D-Mass., told Politico last week. “I’m not here to help those at the top.”
Senate Finance Chairman Ron Wyden, D-Ore., has expressed concern that Republicans will “pound” the message that Democrats were too soft on millionaires in the coming months.
“You can’t be a political party that talks about demanding the wealthy pay their fair share of taxes, and then end up with a bill that gives large tax breaks to millionaires,” Sanders warned last week. “You can’t do that. The hypocrisy is too strong. It’s bad policy, it’s bad politics.”