President Joe Biden repeatedly said he would raise taxes only on the rich to pay for his Build Back Better plan, but now he’s backing a tax break for millionaires and billionaires, contradicting his promises.
House Democrats on Nov. 19 passed Biden’s nearly $2 trillion social and climate spending plan. The bill, called the Build Back Better Act, contains a wide variety of tax provisions, including an increased federal deduction for state and local taxes, or SALT.
The plan allows taxpayers to deduct up to $80,000 of state and local taxes against their federal income taxes, a sharp increase from the current $10,000 cap. This means many among the rich would pay lower federal income taxes than they currently pay.
The handout to the rich in the first few years would be much higher than the money spent on child tax credits, which is “pretty unbelievable,” says Garrett Watson, a senior policy analyst at the Tax Foundation.
The House bill would increase the cap to $80,000 from 2021 through 2030 and drop it back to $10,000 in 2031. Without changes, the current $10,000 limit is set to expire by the end of 2025. So the change proposed by the House would result in a tax cut for higher earners for 2021 through 2025, and a tax hike for 2026 through 2031, Watson said.
Sanders criticized Democrats over their “hypocrisy.”
“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 many millionaires,” Sanders wrote on Twitter on Nov. 18.
“The hypocrisy is too strong. It’s bad policy, it’s bad politics.”
But this reform is especially important for lawmakers in high-tax states, including Senate Majority Leader Chuck Schumer (D-N.Y.), who vowed to eliminate the SALT cap “forever.”
It remains to be seen who wins the SALT battle, but it has already become a divisive issue among Democrats.
Progressives have got “a real messaging problem,” said Jonathan Williams, chief economist at the conservative American Legislative Exchange Council.
Hence, there’s going to be “some heartburn” on the Senate side, he said.
In addition, he said, many state legislators, particularly in low-tax states, feel strongly that any reform to repeal or increase the SALT cap “amounts to a subsidy for high tax, high spend states.”