Millionaires Could Get A Tax Cut From Build Back Better

The top 5% could come out ahead when higher taxes are offset by unlimited state and local tax deductions.

WASHINGTON — Democrats said their Build Back Better Act would make rich people pay more taxes, but that might not happen under an emerging outline of the legislation.

A new proposal Democrats might add to the bill would repeal a 2017 limitation on state and local tax deductions. Unlimited deductions overwhelmingly benefit the richest households in America and could offset the high-income tax hikes Democrats are considering as part of the bill.

The latest Build Back Better draft includes new surtaxes on people earning more than $10 million per year, but adding the so-called SALT cap repeal would deliver a net tax cut worth $30 billion for the richest 5% of households in 2023, according to an analysis by the Committee for a Responsible Federal Budget.

Democrats from states with high income and property taxes have pushed for Build Back Better to include the repeal, which was imposed by the Tax Cuts and Jobs Act as a way for Republicans to offset the cost of lower tax rates and also to punish blue states.

“In Bergen County, New Jersey, where I live, the median property tax is $15,000,” Rep. Josh Gottheimer (D-N.J.) told HuffPost on Tuesday. “Hardworking families like teachers and firefighters, their taxes went up after 2017.”

Only 4% of middle-income households earning between $52,000 and $93,000 would get a tax reduction from the repeal, according to the Urban-Brookings Tax Policy Center, while 93% of households earning more than $1 million annually would benefit, receiving an average tax reduction of about $48,000.

HuffPost asked Gottheimer: What about everyone else?

“I represent Bergen County, New Jersey,” he said.

The new proposal resulted from a deal among Democratic senators, according to an aide. As a budget gimmick, the proposal would fully repeal the SALT deduction limit for five years, then reimpose it for five years starting in 2026, fully offsetting the revenue lost from the first half of the decade. It’s hard to imagine that Congress would bring back the limit.

Unlimited state and local tax deductions would cost the federal government about $100 billion annually, meaning full repeal of the limit would cost about $1 trillion over a decade.

Democrats haven’t finalized the text of their Build Back Better bill, which would establish universal prekindergarten, subsidize child care and plow billions into green energy, and it’s entirely possible the SALT deal will get whittled down. It’s exactly the kind of shell game and budget gimmick that Sen. Joe Manchin (D-W.Va.) complained about on Monday, and Manchin’s vote is pivotal.

“Obviously there’s got to be negotiations and we appreciate what they’ve come up with,” Rep. Jimmy Panetta (D-Calif.) told HuffPost. “So we’ll see what happens going forward.”

Sen. Bernie Sanders (I-Vt.) said in a statement Tuesday that he opposed an unlimited SALT deduction but would be “open to a compromise approach which protects the middle class in high tax states.”

One way of providing “SALT relief” without overly benefiting millionaires would be to increase the current $10,000 limit by a certain amount. Increasing the limit to $20,000, for instance, would result in the richest 1% soaking up a smaller share of the overall tax benefit, according to the Tax Foundation.

News of the SALT provision emerged Tuesday as Democrats also seemed to coalesce on a deal to let Medicare negotiate lower prescription drug prices, potentially resolving one of the last major obstacles to finishing their bill.

House Ways and Means Chairman Richard Neal (D-Mass.) refused to comment on whether the SALT repeal would hurt Democrats’ tax messaging. But ranking member Rep. Kevin Brady (R-Texas) relished the opportunity.

“Democrats are insisting on a half-a-trillion-dollar l-tax windfall for millionaires and billionaires?” Brady said. “And they are pretending to be the party for the working poor?”