Back To The SALT Mines

[ Posted Thursday, November 18th, 2021 – 16:34 UTC ]

We begin today with a mélange of metaphors (or, to be honest, clichés): Democrats are about to shoot themselves in the foot once again. What they really need to do (quickly!) is to go back to the SALT mines and dig up a better solution than the one currently in the House's version of the Build Back Better bill.

Allow me to explain. In case you haven't heard the term before, "SALT" stands for: "State And Local Taxes." Before the Trump tax cuts, people who itemized their deductions on their income taxes (filed Schedule A with their 1040, in other words) used to be able to write off (from their federal taxable income) all the state and local taxes they paid, for things like state income taxes and local property taxes. It was slightly limited (you couldn't easily write off sales taxes, for instance), but essentially anyone who bought a house -- in any state where houses are expensive and property taxes are substantial -- used Schedule A and wrote all those taxes off their federal taxable income each year.

Trump's tax cut changed this, by severely limiting the total amount of state and local taxes to only $10,000. This actually hit a lot of wealthy people hard (with higher federal income taxes) but it was an incredibly devious political move for Republicans because almost all the places in the entire country with both very high real estate prices and high property taxes are located in blue states. Taxpayers in California, New York, and New Jersey (and a handful of other states) all felt this pinch the hardest.

So Democrats from these blue states have been fighting hard to get this limit either eliminated (which would mean going back to the way it worked before the Trump tax cut) or at least raised to a more reasonable amount. Because it wasn't just rich people who were hit by this tax change -- a whole lot of middle class families (mostly in blue states) took the hit too.

Originally, the plan was to roll back major portions of the Trump tax cuts. President Joe Biden has made it clear he won't raise taxes on anyone making less than $400,000 a year, but above that the Trump tax cuts could be rolled back entirely. The change in the SALT deduction was supposed to just be a part of all this. And Democrats could rightfully defend the SALT change (which "lowers taxes on the wealthy!") by pointing out that the wealthy would also see their overall tax rate go up, therefore they'd all wind up paying more taxes anyway.

Then Senator Kyrsten Sinema insisted on keeping all the Trump tax cuts, period. No income tax rate hikes at all. No rolling back the Trump tax cuts, or she wouldn't vote for it. So the entire rest of the Democratic Party had to reluctantly drop this major way of funding the bill.

But somehow, in the House version, the SALT deduction snuck back in. The House version of the bill would raise the limit on SALT deductions from $10,000 to a whopping $80,000. With no means-testing included, this means anyone making a stratospherically-high income will get a huge tax break.

Or to put it as the Republicans are already putting it: "Democrats are slashing taxes on rich people." This is not, to state the painfully obvious, supposed to be what Democrats stand for. It is a messaging disaster waiting to happen. Here's how it's already being framed by some:

Democrats are struggling with a huge problem that could sink them at the ballot box: They may end up looking more sympathetic to rich people than Republicans.

After spending several election cycles campaigning against the GOP's tax cuts as a boon for the wealthy, House Democrats are on the verge of passing a massive tax break for high-income earners -- raising a cap on local and state tax deductions that primarily affects high-cost states. Though it's good politics for many coastal-area members to include that tax relief in President Joe Biden's social spending and climate bill, it's a move that Democrats say threatens to become a national liability ahead of next year's midterms.

With Democrats already lagging behind Republicans in national polls, many in the party say anchoring themselves to this issue is the last thing they should do. Sen. Jon Tester (D-Mont.) said he'd "just as soon have it out. Not a big fan because I think it gives tax breaks to the wrong people: Rich people."

"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," said Sen. Bernie Sanders (I-Vt.). "You can't do that. The hypocrisy is too strong. It's bad policy, it's bad politics."

The Senate will almost certainly either add some sort of means-testing to the new SALT limit, so that people making (say) above $200,000 a year wouldn't be able to benefit from the change. Or they could just as easily raise that $10,000 to something more reasonable (such as $25,000 or $30,000). That would cover just about everyone in the middle class who has a decent house in a decent area in a high-tax state. It may sound like a lot of money, but please remember that a starter house -- your basic suburban house built in the 1950s, nothing fancy at all -- is now going for over a million bucks in the entire San Francisco Bay area. Prices are just as high (or even higher) in plenty of other desirable metropolitan areas in the country. A million bucks buys you what would have cost maybe $20,000 or so in 1970 -- the exact same house. So hiking the tax break to even $30,000 would be entirely reasonable.

But $80,000 is just too high. Unless the rest of the Trump tax cuts are repealed at the same time (to offset the tax break on the wealthy with an even bigger tax hike), the SALT limit is going to have to stay for the time being. It can be raised, but not so high that most of the benefits go to the wealthiest. Or do real means-testing and say that the deduction isn't available after making a certain amount of money. There are ways to fix the problem so it doesn't blow up politically for Democrats.

You may think this sounds like a small or esoteric issue. It's not. It is, in fact, the second-biggest line-item in the House's Build Back Better bill (over five years). Universal pre-K and affordable child care are the biggest, costing $390 billion. Second in line is increasing the SALT cap, at $285 billion. Clean energy and climate only get $220 billion. Paid family leave and all the rest of it each get less than $200 billion. So this is not some minor footnote in the bill -- it is in fact huge. And it is a tax cut. Which will mostly help rich people.

What is wrong with this picture?

Senate Democrats have already realized how bad this branding could be for the party, and they are signaling that they will never accept that high a SALT deduction increase. But the blue-state House members are insisting that it not change in the House version. Which means every House member is going to have to vote for something that is not going to survive intact in the final bill. On an issue that is treacherously hard for Democratic politicians to even try to explain, at least outside of the places where it matters (which translates to: most of the country).

So I end where I began. It's time for Democrats to go back to the SALT mines as soon as they can to fix this. Because if they don't it will be a textbook example of shooting themselves in the foot.

-- Chris Weigant


Follow Chris on Twitter: @ChrisWeigant


10 Comments on “Back To The SALT Mines”

  1. [1] 
    C. R. Stucki wrote:

    I thought it was "Strategic Arms Limitation Talks".

  2. [2] 
    Elizabeth Miller wrote:


  3. [3] 
    Elizabeth Miller wrote:

    Good God ... Dems are really going to experience another shellacking, aren't they!!??

  4. [4] 
    SF Bear wrote:

    The original SALT limitations were added by Mr. Trump specifically to "get back" at CA for not supporting him. And of course the Repubs enthusiastically went along cause you know dumping on California is always a great way to gain support in the Pleistocene areas of the country. Biden and Company promised to fix this! Now it is Biden who is waging war on Calif. First, by removing CA from the infrastructure bill funding, and now bay abandoning his promise to remove a Trump tax on us. I say enough Joe Biden! Californians supported him more than any other state. we raised more money for him, and provided more votes for him, we even provided a Vice President choice that enabled him to cement his support in the black community. To stab us in the back like this is unconscionable. Sinema is his problem not ours, he needs to figure out a way to placate her without robbing the state of California!

  5. [5] 
    John M from Ct. wrote:

    Copying [1].
    What a pleasure to be on board with CRS, for once. I too read the headline and thought, oh my God, now what about the nukes?

    Now that I know it's the state and local taxes version of the flexible acronym, my reaction is this is a tempest in a teapot. The Dems will self-correct and get it more or less right assuming they ever pass the soft-infrastructure bill at all.

    What they should be concerned about is the polling showing that the flexible middle class of voters who are open to either moderate Repubs or moderate Dems in any given campaign are swinging against the Dems. Not because of property tax deductions, but because the Dems come across as elitist snobs. Or rather, because the Dems allow their elitist snobs to dominate the nation's view of what liberalism stands for these days. That's the messaging that the party needs to reform ASAP, rather than the technicalities of tax legislation.

  6. [6] 
    MtnCaddy wrote:

    This is another Optics-Problem-du-Jour moment. Part of the sausage making process. Repugs are throwing everything they can think of at the kitchen wall to see what sticks, big whoopie -- in days it'll fall off the radar screen. That said, here's my Dem Talking Point Response:

    Look, Trumps tax cuts hurt even middle class homeowners mostly in blue states because that's what Trump wanted.That's not cool. We owe it to them to double their SALT deduction to $20K.

    REMEMBER, best of all, American millionaires are still paying for Build Back Better!

    No, Elizabeth, it's waaay too soon to jump to any conclusions. Remember, Don't panic -- there'll be plenty of time to do that later!

  7. [7] 
    MtnCaddy wrote:

    I'd like to see Joe poach Murkowski and maybe Collins. After all, DINOs Manchin and Sinema are going Independent as sure as #MoscowMitch is going to dump the filibuster first thing.

    There's no place in the GQP for either of them.

  8. [8] 
    MtnCaddy wrote:

    Yeah, I thought "nukes," too, said the Boomer.

  9. [9] 
    MtnCaddy wrote:

    The final result is allthat counts. But one can still dream, right?

    It turned out that somewhere near the end Biden secretly got Manchinema on board. They let the sausage making lower the impact on the rich as far as it would go... and then added $200B and restored some popular feature. Biden was declared a political genius and his party ran on it, against a "GQP in disarray." Heh. The favorable Senate map helps the Dems net two Senate seats, and Trump fever finally breaks.

  10. [10] 
    MtnCaddy wrote:


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