House Speaker Nancy Pelosi, D-Calif., has political priorities. During negotiations over the three Wuhan coronavirus stimulus bills, Pelosi and Senate Minority Leader Chuck Schumer, D-N.Y., tried to include loans for abortion providers, as well as a bailout of the Obamacare exchanges that would end up funding abortion.
That led to some bad PR for Pelosi, but the House speaker may be a glutton for punishment. If there’s one thing Democrats are beholden to more than the abortion lobby, it’s the rich people in blue states who fund their campaigns.
How’s this? Pelosi just told reporters that one of her top priorities for a fourth stimulus bill — which may or may not be passed, since Congress has already passed three bills and spent more than $2 trillion — is a removal of the current cap on the state and local tax deduction, or SALT.
The 2017 Cap on the SALT Loophole
The 2017 Trump tax cuts capped the SALT deduction at $10,000 per year of state and local taxes paid. This was to end a loophole that went to rich people living in high-tax states, who were allowed to deduct their high state taxes from their federal tax bill. This allowed politicians in these states to run on high taxes for the rich, and to raise state taxes, but also to shield their donor class from the full consequences of those policies.
The uncapped SALT deduction didn’t go mostly to rich people, it went only to rich people. This is because only rich people pay well more than $10,000 in state and local taxes, and this deduction was available only to those who didn’t take their standard deduction.
The standard deduction is the amount of money a taxpayer is allowed to earn before being taxed. In 2019, it was more than $12,000 for a single person and double that for a married couple. Taxpayers can “itemize,” and not take their standard deduction, if enough tax breaks and loopholes add up to surpass the standard deduction. If the first $50,000 for a married couple can’t be taxed, for instance, that’s better than the $24,800 standard deduction, so this couple would itemize.
Before 2017 tax reform, which capped both the mortgage interest deduction and the SALT deduction, the rich benefited greatly from being able to itemize. Especially in blue states, where rich people pay extremely high state and local taxes, those high state taxes ran up their itemized deduction amount and directly reduced their federal tax bill.
According to an estimate by the congressional Joint Committee on Taxation, repealing the $10,000 limit to the SALT would reduce federal revenues by about $77 billion a year. Fifty percent of the money would go to those earning more than $1 million per year, with the rest going to those who earn more than $200,000 per year. Meanwhile, only 3 percent of middle-income households in the United States would benefit at all from getting rid of the SALT deduction cap.
But Pelosi doesn’t just want to give her rich donors their loophole going forward. She wants to “retroactively undo [the cap on] SALT.” “We could reverse that for 2018 and 2019 so that people could refile their taxes,” and they would “have more disposable income, which is the lifeblood of our economy, a consumer economy that we are,” said Pelosi.
Predictably, her spokesman later walked back her wish for a reinstatement of the full SALT deduction, and said it could be “tailored to focus on middle-class earners and include limitations on the higher end.” The problem is that the dwindling middle class in a state like California doesn’t get this deduction.
Democrats didn’t dream this up yesterday, either. It has nothing to do with the Wuhan coronavirus. Democrats have been pushing for an end to the SALT cap ever since the GOP passed it in 2017. Here’s the New York Times: “In the 2018 midterm elections, Democrats wielded the SALT limits in House campaigns against Republicans in wealthy blue-state suburbs of cities like New York, Los Angeles and Chicago. Democrats voted last year to repeal the cap, but the effort died in the Republican-controlled Senate.”
When Democrats voted to repeal the SALT cap in the House last year, on mostly party lines, they were even willing to “frontload” the bill to immediately cut the taxes of the blue-state wealthy by raising taxes for everyone else — including working Americans — at a later date. Earlier, they were so desperate to get rid of the SALT cap, they even funded a lawsuit to try to overturn the law in the courts.
Pelosi’s priority isn’t working to make our economy less dependent on China, nor to help the millions of service-sector employees who have been laid off. The country is in economic turmoil, and some are estimating unemployment could shoot over 20 percent, but House Democrats are worried about their rich donor base. This behavior is shameful and instructive regarding the ocean-sized gap between the Democratic Party of today and the Democratic Party of yesteryear, flawed though it may have been.
Democrats tell us normal people they don’t like how far corporate taxes were cut. That may be fair. But behind the scenes, congressional Democrats’ main priority is bringing back a big tax loophole for rich people in high-tax blue states: their donors. You can’t make this stuff up. Democrats are no longer the party of the little guy, and haven’t been for a very long time.