Strange Bedfellows: Bernie Sanders and Republicans Agree on SALT Deductions

Bernie Sanders is in bed with Republicans on State and Local Tax deductions. Let's investigate why.
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Illustration Bernie Sanders

2017 Tax Cuts and Jobs Act (TCJA)

Trump's 2017 tax reform bill (TCJA) put a $10,000 ceiling on ability to deduct SALT (State and Local Tax) deductions on federal tax returns. 

Senate Majority Leader Chuck Schumer (D., NY) has vowed to make SALT fully deductible. 

Curiously, Bernie Sanders is in bed with Republicans.

Q: What's going on?
A: Sanders accurately says deductions overwhelmingly benefit the wealthy. 

Q: Why did Republicans reduce SALT deductions?
A: To punish high tax, left-wing states like New York and California.

$10,000 Cap

With a $10,000 cap, 96% of the repeal would go to the wealthy.

Sanders inconveniently points out the hypocrisy of the Democrats' position.

Schumer's Lie

"We need to cushion the blow of this virus. The SALT cap hurts people affected by the virus. It hurts so many of the metropolitan areas like New York," said Schumer.

Handout to the Rich

In a "Middle Class Memo" Brooking's comments "The SALT tax deduction is a handout to the rich. It should be eliminated not expanded"

Brookings concluded "Lifting the SALT cap much more pro-rich than Trump’s tax bill".

Lifting the SALT Cap

Tax Policy Center Comments

  • Lifting the cap on the SALT deduction would massively favor the rich, with most of the benefit going to the top one percent
  • Lifting the cap would in fact give almost three times as much, as a share of the cut, to the top one percent as the TCJA cuts did as a whole (of course the absolute amount is very much less)
  • Even with the cap, the SALT deduction remains pro-rich, with around three-quarters of the benefit going to families in the top fifth of the income distribution 

Strange Bedfellows

A Reason.Com article concludes Bernie Sanders Is (Mostly) Right About the SALT Deduction

Sen. Bernie Sanders (I–Vt.) is correct to point out, as he did in an interview with Axios this week, that the SALT cap creates a serious optics problem for Democrats. Sanders says he will oppose Schumer's effort to attach the SALT cap repeal to the transportation bill because "it sends a terrible, terrible message when you have Republicans telling us that this is a tax break for the rich."

To be clear, it is not just Republicans saying that. Richard V. Reeves and Christopher Pulliam, a senior fellow and research analyst, respectively, at the Brookings Institution, calculated last year that 96 percent of the benefits of a SALT cap repeal would go to the top 20 percent of earners, with the top 1 percent getting 57 percent of the benefits.

"When you hear someone say that they don't want to raise taxes on the wealthiest 1 percent or corporate America, ask them: 'Whose taxes you want to raise instead?'" Biden said.

Tax the Wealthy, Just Not Ours

Biden and the progressives want to raise taxes on the wealthy.

Biden even pledged no tax increases on the middle class to pay for his socialist agenda.

Yet, if Democrats reinstate SALT deductions they will have to propose still more tax hikes somewhere else just to give special favors to the wealthy in California and New York.

Headed to the Gutter

Independent Senator Bernie Sanders along with Democrats Krysten Sinema and Joe Manchin all have expressed serious reservations about Biden's plans. 

In addition, there are 25 New York representatives who demand reinstating SALT for supporting the plan.

Sanders alone could kill this. I suspect in practice he wouldn't. But trying to appease Sanders, Sinema, Manchin, and all the reps from New York and California is more than a bit problematic.

It looks increasingly likely that Biden's American Families Plan is headed to the gutter where it belongs. 

Ultimately, Congress is likely to pass something, but it will be a tortured hollow shell of Biden's grandiose American Families plans.

Mish

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