The Senate’s Inflation Reduction Act is headed to the House this week — Speaker Nancy Pelosi is "quickly convening" her troops — and it looks as if a debate over the SALT tax cap won’t prevent or even delay final passage.
“SALT” refers to the state and local taxes that taxpayers can deduct from their gross annual income when filing federal taxes. The 2017 Republican tax scam capped those deductions at $10,000 through 2025. The IRA has no provisions for eliminating or even raising the cap, which Sen. Joe Manchin dismissed as a tax "loophole.” Of course, it wouldn’t really apply to most people in West Virginia.
For the past couple years, several House Democrats have insisted that any spending bill must also lift the SALT tax cap. “No SALT. No deal” was their mantra, which conflicted with the more traditionally progressive “tax and spend” not “spend but tax slightly less in high-income, high-tax states.” The former does fit more easily on a tee-shirt.
Rep. Mikie Sherrill from New Jersey was so focused on removing the SALT cap that she declared last summer the “Summer of SALT.” (I imagine her biting into a big hunk of salt like it was an apple.) She’s now OK with this summer ending with the SALT cap in place. In a statement announcing her support for the IRA, she said: "I will also remain steadfast in my commitment to ensuring that any discussion of reforms to the 2017 tax law begins with addressing SALT. Because this legislation does not raise taxes on families in my district, but in fact significantly lowers their costs, I will be voting for it.”
A point that I don’t think Democrats press hard enough is that the Republican tax scam bill deliberately raised taxes on “blue state” residents. It’s straightforward and insidious. What remains of a middle class in New Jersey, New York, and California got squeezed harder by Trump.
Some New Jersey residents pay more than $10,000 in property taxes alone, and in 2018, Kevin de León, then California’s state Senate president pro tempore, pointed out that prior to the SALT cap, the average California taxpayer took a $22,000 deduction. Democrats struggle with seeming too sympathetic of taxpayers who earn six figures, as that’s not what most people consider “middle class,” even when taking into account the local standard of living. However, "blue state" residents who are “rich in Cleveland” usually don’t vote Republican (they do vote for Democrats like Eric Adams, but that’s another post).
[The GOP tax bill] hits residents of California, New York, New Jersey, and a handful of other states—all of which are already “donor states,” meaning that their taxpayers send more money to Washington than they get back in federal spending—peculiarly hard: First, in capping the amount of state, local, and property taxes that taxpayers can deduct from their federal income calculations, the bill ensures that middle-income earners in these states will be double-taxed when they pay federal taxes. Approximately 3 million Californians, experts calculate, already pay more than $10,000 a year in state taxes.
We remember when Republicans cared about "double taxation," but they meant Elon Musk's 44 children having to pay some taxes when they inherit their father's emerald mine fortune, not "the feds taxing what you already paid taxes on to the state."
Imagine Democrats passing a tax bill that screwed every taxpayer in Wyoming, Alaska, and Montana. Those are solidly “red” states, so there’s limited electoral blowback, but it’s still not how Democrats roll.
Prominent progressives have supported removing the SALT cap, as well (though some terminally online types are aggravated that it's "regressive" rather than noting that it's literally intended to kill the blue state model of tax and serve). California Democrats including Katie Porter and Ro Khanna wrote in a letter to President Joe Biden last year:
Enactment of the SALT cap specifically targeted states and localities that have chosen to provide strong taxpayer support for critical government services such as education, health care, transit, and social services.
“Blue” states have relatively high taxes that help fund vital services. They still contribute more to federal spending than many so-called “red" states, including West Virginia. Manchin is one to talk about “loopholes.” It’s easy to maintain low state taxes when you’re confident the federal government will pick up the tab for your regularly scheduled disaster aid.
Kyrsten Sinema, the Senate’s patron saint of hedge fund managers and private equity firms, supported Republican Sen. John Thune’s failed amendment that would’ve extended the SALT cap for another year — as it stands, it's set to expire in 2025 — to pay for shielding her corporate constituents from the 15 percent corporate minimum tax. Yes, Sinema was willing to stick it to the “blue state” middle class on behalf of the absurdly wealthy.
Absolutely zero Republicans are expected to vote for the IRA and Democrats have few votes to spare. Although the entire New York congressional delegation, except for Reps. Alexandria Ocasio-Cortez and Kathleen Rice, had once promised to oppose any reconciliation bill that didn’t include a SALT cap repeal, the Democratic caucus appreciates what’s at stake with the IRA. They’re not going to walk away from what’s potentially their last turn at bat.
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