POLITICS

Democrats Target Part Of The GOP Tax Law That Hurt The Rich

They want to restore a legal dodge around the law's cap on state and local tax deductions, which notably hit blue states.

WASHINGTON ― Despite a lot of talk about taxing the rich, Senate Democrats forced a vote on a resolution that goes in the opposite direction.

The Republican-backed tax law that President Donald Trump signed at the end of 2017 cut taxes for the vast majority of households, but wealthier ones reaped the biggest benefit. A sliver of higher-income taxpayers, however, was clobbered by the law’s $10,000 limit on the amount of state and local tax payments that can be deducted from filers’ federal taxable income. Republicans knew this change would especially hit high-tax states where people tend to vote Democratic ― like New York and California. 

On Wednesday, the Senate failed to approve a resolution that would have benefited those blue state inhabitants by striking a Treasury Department regulation that prevents state governments from using tax credit schemes to help households dodge the limit. The resolution went down by a vote of 43 to 52, with one Republican voting in favor and one Democrat against. 

Senate Minority Leader Chuck Schumer (D-N.Y.) said Tuesday that the resolution would nullify a “horrible rule and put power back in the hands of homeowners.” (Homeowners tend to have higher local tax burdens due to property taxes.) 

Not all Democrats were on board. In a floor speech on Tuesday, Sen. Michael Bennet (D-Colo.), the lone Democratic no vote, lambasted the 2017 law as a giveaway to the rich. He said the Treasury Department’s regulations were sloppily written, but that undoing them would primarily help the wealthy. 

“The benefit of this resolution goes to people at the very top,” Bennet said. “The top 0.1%, who are people who have $3.3 million of income on average; the top 1%, who have an average income of $755,000; and the next 4%, who make $319,000.”

Outright repealing the limit on state and local tax deductions would benefit 9% of households overall and only 3% of middle-income households earning between $49,000 and $86,000, according to the Tax Policy Center. But political definitions of the middle class often extend further up the income scale than income-based definitions, and Democrats have their eyes on the 15.6% of households earning between $100,000 and $200,000 that could benefit from even indirectly raising the limit. 

Bennet said he knew his colleagues didn’t want to do favors for the rich, “but the way we approach these issues really matters to the American people so they know whom we are fighting for.”

Instead of repealing the tax regulation, the senator said, Democrats should vote on a different piece of legislation that he introduced earlier this year, the American Family Act, which aims to reduce poverty through a new child tax benefit. Other developed countries have similar policies and lower levels of child poverty. But in the U.S., children are the most impoverished age group. 

Senate Majority Leader Mitch McConnell (R-Ky.) echoed Bennet on Wednesday. “It’s bad enough that my Democratic colleagues want to unwind tax reform,” McConnell said. “But it’s downright comical that their top priority is helping wealthy people in blue states find loopholes to pay even less.”

Sen. Ron Wyden (D-Ore.), the top Senate Democrat on tax issues, said the proposed resolution was more about correcting sloppy governance than effectively boosting the state and local tax deduction, otherwise known as SALT.

“This is not a referendum on SALT,” Wyden told HuffPost before the vote. 

Some states tried to get around the $10,000 limit on SALT deductions by allowing tax filers to make federally deductible “donations” to the state government in exchange for credits that offset their state tax bills. The Treasury rule forbids taxpayers to take federal deductions for charitable donations that result in a quid pro quo state tax benefit. 

Under the Congressional Review Act, Congress has the power to strike recently issued regulations ― a power that Republicans put to extensive use right after Trump took office in 2017. 

Wyden pointed out there have been complaints about Treasury’s rule, including from Sen. Lindsey Graham (R-S.C.), who wrote to the department this month asking for a carveout for donations to state-run charitable programs. And the conservation group Ducks Unlimited said in a 2018 letter responding to an initial draft of the rule that it would undercut additional state tax incentives for conservation easements that are federally tax-deductible.

Even if the Senate had approved the resolution Wednesday, and then the House had followed, Trump could still have vetoed it. And whatever happened, the limit on SALT deductibility remains on the books, since the resolution only targeted the one regulation preventing the tax dodge.

The story has been updated to note the Senate’s failure to pass the resolution and to add more detail about the reach of the SALT deduction.

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