At a hearing focused on the state and local tax deduction Tuesday, the “familiar politics of taxation—in which Democrats push to raise taxes on high-income people and Republicans resist—turned topsy-turvy,” writes Richard Rubin of The Wall Street Journal.
During debate in a House Ways and Means subcommittee, Democrats argued that the cap on the SALT deduction imposed by the Tax Cuts and Jobs Act was hurting middle-class families and communities in high-cost parts of the country. Before the law was passed, households could deduct the full cost of their state and local taxes on their federal tax forms, but the TCJA put a $10,000 cap on those deductions, increasing taxes for some residents of high-tax areas. Representatives from those districts are now pushing to restore some or all of the lost tax break.
Rep. Don Beyer (D-VA) argued that high-cost areas aren’t necessarily wealthy. A house in an East Coast suburb might cost more than $700,000 and come with a substantial property tax bill, Beyer said, but that doesn’t mean its owners are rich. “There are no yachts in Falls Church,” said Mayor David Tarter, speaking of the wealthy Virginia suburb he helps run.
Republicans pushed back, using a basic Democratic complaint about the TCJA against them – namely, that raising or eliminating the SALT cap would disproportionately help the rich. A recent report from the Joint Committee on Taxation found that repealing the cap would reduce federal tax revenues by $600 billion over 10 years, with 52% of the benefit flowing to households that earn $1 million or more.
The bottom line: The unusual role reversal, in which Democrats advocated for a tax cut that would primarily benefit the wealthy and Republicans resisted, left the matter largely unsettled. Democrats themselves are divided on the issue, with some preferring to avoid the issue altogether given its regressive effects. But even if Democrats can come together on a plan, legislation is highly unlikely to succeed, given that Republican leaders in the Senate have signaled that any bill raising the SALT cap would be dead on arrival in the upper chamber.