Democrats in the Senate lost a fight to repeal regulations related to President Trump’s 2017 tax cut through a measure that would have primarily benefited wealthy taxpayers in blue states.
With a 43-52 vote against the repeal on Wednesday, Senate Minority Leader Chuck Schumer did not succeed with the effort to cancel Treasury Department and IRS regulations that prohibit high tax states from getting around the $10,000 cap on state and local tax deductions that were a part of the 2017 Republican tax law. Schumer was able to force a vote on the subject via a special procedure allowed under the Congressional Review Act, which gives Congress a mechanism for striking down regulations.
The vote took place mostly along party lines, with Democrat Michael Bennet of Colorado voting with Republicans and Sen. Rand Paul of Kentucky voting to undo the regulations.
Wednesday’s vote was a rare instance of Democrats effectively fighting for tax cuts that would accrue to the rich, with Republicans in opposition.
The Joint Committee on Taxation, or JCT, estimated in a report released in June that the repeal would cut taxes for 13.1 million taxpayers in 2019, 99% of whom have incomes of at least $100,000. Furthermore, over 50% of the benefit would go to those with incomes of at least $1 million, according to the JCT analysis.
The Tax Foundation, a right-leaning think tank, noted in a June 2019 analysis of the deduction, commonly referred to as the “SALT” deduction, that repealing it would be a “regressive tax policy change” that would overwhelmingly benefit the top fifth of taxpayers.
Senate Majority Leader Mitch McConnell said on the Senate floor that he opposed the SALT deduction repeal it would result in “$60,000 tax cuts for wealthy people and $10 tax cuts for the middle class.”
“Apparently, that sounds like a good trade to our Democratic colleagues,” he said. “It doesn’t sound like a good trade to me.”
“It’s downright comical that their top priority is helping wealthy people in blue states find loopholes to pay even less,” he said.
Many Democrats say that the cap on SALT deductions unfairly affects taxpayers in their states, where incomes and housing prices are higher. They argue that the Republican bill targeted Democratic voters in order to pay for the tax cuts.
“Donald Trump and Republicans intentionally targeted Democratic states so they could shovel tens of billions of dollars more in tax cuts to the wealthiest individuals and companies in America,” said Oregon Democrat Ron Wyden.
Schumer said he wanted to “vote to nullify the IRS’s horrible rule and put power back in the hands of homeowners. America’s homeowners shouldn’t be forced to bear the brunt of the GOP’s political games.”
High-tax states like Connecticut, New York, and New Jersey responded to the 2017 tax overhaul by passing laws to create charitable funds to which taxpayers could give state tax payments, thereby laundering state taxes into federally tax-deductible charitable contributions, bypassing the SALT deduction cap.
A federal judge in New York ruled in September that the 2017 federal tax overhaul’s cap on state and local deductions was not an “unconstitutional assault” on the high-state taxes, as Democrats had alleged.
