Tax the rich? Maybe not. Democrats’ spending plan could be tax cut for the rich, says budget watchdog

The Build Back Better framework released by the White House last week calls for tax increases on the wealthiest families, including a surtax on multimillionaires and billionaires.
While this was not addressed in the framework, some observers expect the package to eventually include a repeal of the $ 10,000 cap on the federal deduction for local and state taxes, known as SALT. . Some Democrats have said they won’t vote for legislation without action on the SALT cap, which has been a particular problem in California, New York, New Jersey and other high-tax states.
The bipartisan Committee for a Responsible Federal Budget found in an analysis released Friday that repealing the SALT cap would more than offset planned tax hikes on the rich.

“A repeal of the SALT cap over two years – if included – would cut taxes on the richest 5% of wage earners by more than $ 70 billion” in fiscal year 2023, the CRFB said.

After taking into account the planned tax increases on the rich, the package would result in a net direct tax reduction of $ 30 billion for the richest 5% when the repeal of the SALT cap takes effect, according to the analysis.

The 2017 tax law signed by former President Donald Trump imposed a limit of $ 10,000 on the amount of state and local taxes (including property taxes) that households can deduct from their federal taxes.

Larry Summers steps in

According to a 2018 Tax Policy Center analysis, more than 96% of the benefits of repealing the SALT cap would go to the top 20% of households.

“If lawmakers are serious about raising taxes on top earners, repealing the SALT cap makes this goal much more difficult,” said the CRFB. “Instead, a much more progressive and fiscally responsible decision would be to abandon the repeal of the SALT cap.”

Former Obama economic adviser Larry Summers on Sunday expressed concern over the tax implications of the legislation.

“I’m certainly not a leftist ideologue, but I think something [is] bad when taxpayers like me, well in the top .1% of the income distribution, get a significant tax cut in a Democrats-only tax bill, as now seems likely, ”wrote Summers, who served as Secretary of the Treasury during the Clinton administration, wrote to Twitter.

The Build Back Better framework calls for new taxes on the rich.

This includes a 5% surtax on income over $ 10 million and an additional 3% levy on income over $ 25 million. The framework also removes loopholes that allow some affluent taxpayers to avoid paying a 3.8% net tax on investment income on income.

“No SALT, no deal! “

It’s important to note that there are still a lot of unknowns here, including whether and how Democrats will approach the SALT cap. The CRFB has warned that the numbers in its estimate are “approximate” and will change when a final score on the reconciliation dossier is released by the Joint Committee on Taxation.

New York Representative Tom Suozzi has indicated that he expects Congress to act on SALT.

“No SALT, no deal! I have no doubts that this will be part of the final deal,” the Democrat said in a statement. Tweeter Last week.

Raymond James strategists said if SALT were changed, the “most likely outcome” would be for legislation to remove the SALT cap for two years, potentially with income or a full dollar limit.

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“This is more of a budget calculation and a political movement that positions Democrats to offer a temporary tax cut, especially in high-tax Democratic states,” Raymond James strategists wrote in a note. last week.

In this scenario, the SALT cap would be eligible for reversion after the two years.

The CRFB said the reconciliation bill “would almost certainly increase taxes on top earners if and when the repeal of the SALT cap expires.”

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