Editorial: Pushing SALT cap repeal is playing with fire

The Island Now

Congressman Tom Suozzi says he will not support President Biden’s $2 trillion infrastructure plan unless taxes on the wealthy are cut.

Well, Suozzi doesn’t actually use those words. That’s just our interpretation. So let us explain.

What Souzzi actually says is that he will not support any changes to the tax code if it does not include the repeal of the $10,000 limit on deducting state and local taxes, known as the SALT cap, when filing federal taxes.

The SALT cap was included in the $2 trillion tax cut package approved by President Donald Trump and congressional Republicans in 2017 that went mainly to large corporations and the rich.

It was the one area in the tax bill that increased taxes and it just happened to hit taxpayers hardest in blue states where taxes are higher such as New York, New Jersey and California.

“The cap on the SALT deduction has been a body blow to New York and middle-class families throughout the country,” Suozzi said in April.  “Over the coming months, we will work with House Leadership and the White House to highlight the middle-class families unfairly hurt by the SALT cap. At the end of the day, we must fix this injustice.”

“Donald Trump’s SALT deductions cap was always meant to be an attack on the hardworking families who live in blue states,” Suzzo said, striking a more partisan tone, in a fund-raising email.

Suozzi has been successful in gaining support for the legislation from congressional representatives of both parties across the tristate area, including Trump loyalists Lee Zeldin and Elise Stefanik in New York. The one exception is Rep. Alexandria Ocasio-Cortez.

He has also been joined by the U.S. Conference of Mayors, which represents more than 1,400 Republican cities across the country and many other national groups.

Suozzi and his supporters are correct that the SALT cap is unfair and no doubt aimed at blue states.

But there is a big problem with their argument that the SALT cap falls on the middle class – even if you accept Suozzi’s claim that a family earning $200,000 is middle class.

The top 20 percent of American households, ranked by income, would receive 96 percent of the benefits of the change, according to an analysis of the Urban Brookings Tax Policy Center.

But a family making between $100,000 to $200,000 a year would receive on average just $130.

The largest beneficiaries would be among America’s wealthiest.

“The 1 percent of households with the highest incomes would receive 54 percent of the benefits, on average paying about $36,000 less per year in federal income taxes,” according to The New York Times. Those making more than a million dollars a year would benefit by more than $44,000.

We might also point out that those people at the top of the earnings scale were the largest beneficiaries of the 2017 tax cuts.

It is true that those most impacted by the SALT cap are in higher tax states like New York, but it is the wealthy in those states who itemize their deductions that would be the overwhelming beneficiaries. Not the middle class.

Which is perhaps why you have every congressional Republican from New York – including the No. 3 leader in the House – supporting its elimination.

There are those who would also argue that helping the wealthy in New York is still a good idea because they contribute a high percentage of state taxes and the SALT cap might drive them to low tax states like Florida.

That possibility exists.

On the other hand, the higher taxes in New York come with higher services. New York, for instance, spends $24,000 per student, according to the U.S. Census Bureau, and more than $30,000 in many North Shore districts. Florida spends $9,346 per student.

Cutting school spending would save the average North Shore taxpayer more than eliminating the SALT cap. But the approval of every school budget on the North Shore in recent elections suggests that residents don’t mind spending more – at least for education.

The second problem with eliminating the SALT cap is its impact on Biden’s plans for infrastructure.

Biden proposed a $2 trillion infrastructure plan – since reduced to attract Senate Republicans – that would rebuild roads, repair bridges, eliminate lead pipes from the nation’s water supplies, upgrade transportation, expand broadband, upgrade the electric grid and build environmentally sound housing, as well as train workers, support unions and increase the number and pay of providers of in-home care for older and disabled Americans.

The administration says the plan is needed by the United States in its growing economic competition with China.

To pay for it the administration proposed a series of changes that would make the tax code much fairer and generate money.

It includes raising the corporate income tax rate from 21 percent to 28 percent, strengthening the global minimum tax for U.S. multinational corporations, enacting a 15 percent minimum tax on book income of large companies that report high profits but have little taxable income.

The plan for infrastructure has high support across the political spectrum that actually rises when increasing corporate taxes is included.

This should not be unexpected at a time when corporations provide only 7 percent of the federal government’s revenue, down from the 35 percent they paid in 1952. Fifty-five of the country’s largest corporations paid no taxes in 2020.

But congressional Republicans have so far said they would not support any increases in taxes – especially those made in Trump’s signature 2017 tax cut legislation. They and others have also now begun raising concerns about the federal deficit – after four years in which they pretended not to notice it.

Repealing the SALT cap would reduce federal revenue, costing the federal government $673 billion over the next 10 years, according to the Tax Foundation. That’s more than Biden plans to spend on fixing roads, bridges and other transportation projects in his infrastructure plan.

So how do Suozzi and other Democrats plan on paying for the cost of the SALT cap – and the infrastructure plan? And would Suozzi and the Democrats really be willing to sink a very popular and much-needed infrastructure plan because the SALT cap was not repealed?

If Suozzi really wants to impress us, he would get bipartisan support for legislation that would require corporations, and the rich, to pay their fair share of the taxes needed to run the federal government.

As we have said before, we hope that Suozzi is merely negotiating when he and his fellow Democrats threaten to blow up Biden’s plans for infrastructure and making the tax code fairer.

We also hope that Suozzi and other Democrats come up with a better way to aid New York and other states that offer more services – and tax revenue to the federal government – without giving most of that money to the rich.

The Democrats’ failure to support the poor and the middle class in the past helped give rise to Donald Trump, who promised to raise taxes on the rich and help average workers – at least if they were white.

Trump did just the opposite, but Democrats still saw their share of the vote for Blacks and Hispanics drop in 2020, losing House seats that they thought they would win.

Perhaps because Democrats have talked too often about helping the middle class but didn’t deliver.

Biden’s infrastructure gives Democrats – and Republicans who join them – a chance to show Americans that they are capable of delivering on their promises.

They should make sure not to jeopardize it.

 

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