A new analysis by the Joint Committee of Taxation, which is tasked with providing the official analysis of tax policy for members of Congress, demonstrates the risk to Democrats who choose to run on fully repealing President Trump’s tax cuts.
Democrats have widely condemned the cuts as a giveaway to the rich. Though there were significant benefits to corporations and those with higher incomes (depending on where they lived), the tax law also included many provisions that cut taxes for middle-class families and squeezed wealthier households.
One of those provisions limited the state and local tax deduction to $10,000. Previously, taxpayers were able to take unlimited deductions on these taxes, on top of deductions for mortgage interest, charity, and everything else. Thus, the benefits of the deduction fell more heavily on wealthier taxpayers, who were more likely to itemize their deductions, and more likely to live in jurisdictions with high taxes.
No surprisingly, liberal states with high taxes have been angry about the cap and have been pushing for its elimination.
But in a Tuesday analysis, the JCT has estimated that if the provision were repealed, the benefits would flow overwhelmingly to those with higher incomes. Under the current law, as a result of the doubling of the standard deduction, just 17.6 million taxpayers even itemized their deductions in 2018 — down from 47.2 million in 2017, before the changes.
JCT found that “the repeal is estimated to result in a decrease in tax liability for 13.1 million taxpayers, 94 percent of which have $100,000 or more of economic income. Additionally, approximately 99 percent of the decrease in tax liability accrues to taxpayers with $100,000 or more of economic income.”
Republicans faced a problem repealing Obamacare, which was broadly unpopular, because there were provisions that were in fact popular. Democrats risk a similar problem in calling for a blanket repeal of the Trump tax cuts, which Sen. Kamala Harris has done. (Joe Biden has also spoken of repealing the tax cuts on “day one,” though his statement left more wiggle room to preserve some of the provisions.)
One thing that Democrats have going for them that Republicans did not, however, is that the various provisions of Obamacare were connected to each other and harder to eliminate piecemeal. Also, the process of making policy through the reconciliation process in the Senate, which allows for passage with a simple majority, is more complicated for healthcare law than tax law.
So Democrats could, in theory, replace the Trump tax law as part of a broader tax hike package that meets their leftist goals. But my guess is that they’ll probably have to keep parts of the tax law intact.
Of course, if they actually try to implement the rest of their agenda, which involves tens of trillions in new spending, then broad-based middle class tax increases would be necessary.
