We’ve followed Joe Biden’s campaign closely from the beginning. We appreciated the conservative notes he used to sound back in Iowa, lauding “loyalty” as a centerpiece of character and honoring roots by saying that “where you’re from” is central to who you are.
Unfortunately, loyalty and place might translate into bad tax policy in the Biden administration. His allies now want to reward the upper-middle-class suburbanites who elected Biden by passing a massive tax hike narrowly tailored to this wealthy set of swing voters.
Senate Minority Leader Chuck Schumer has said that his very first priority will be repealing the cap on the state and local tax or SALT deduction. Biden has been wishy-washy on this issue, torn between the Schumer vision of the Democratic Party as catering to wealthy successful blue-state clientele and Biden’s own (outdated) vision of the Democratic Party as the party of the working man.
We implore Biden to walk away from Schumer’s plan and instead leave the SALT cap in place.
President Trump and the Republican Congress passed the Tax Cuts and Jobs Act in 2017, cutting taxes for almost everyone and shifting a greater proportion of the tax burden on to the wealthy. The bill didn’t close as many loopholes as we would have wanted, but it did provide some real tax reform by moving millions of taxpayers from itemizing their deductions to taking the standard deduction.
The law did that by doubling the standard deduction and capping at $10,000 the amount of state and local taxes that taxpayers could deduct from their federal taxes. Curbing this deduction only affects a minority of taxpayers. Most people already itemized, especially after the standard deduction was doubled. Most people owe less than $10,000 in state and local taxes. And those who itemize and owe significantly more than $10,000 in state and local taxes are high earners who have chosen to live in high-tax states.
It was backdoor tax reform. The mere reduction in the number of people taking itemized tax deductions entailed a corresponding reduction in the distorting effects of the tax code upon the economy. It thus increased the efficiency of the economy and people’s happiness.
Schumer railed against this tax reform, promising to abolish the SALT cap and allow unlimited deductions of state and local taxes. This would be a massive tax cut only for the wealthiest.
It is unsurprising the senator from New York would look after the interests of these high-earning people — they are his constituents and the donors to the Democratic Senatorial Campaign Committee. It was a bit out of character for Blue-Collar Joe, however, when he said in late 2019 that he, too, wanted to repeal the cap and restore this tax cut for the rich.
This tax break for the rich was so big that it outweighed the revenue effects of tax hikes Biden proposed on those earning over $400,000. (The official Washington definition of wealthy is calculated by adding a Washington Post salary to a CNN contributorship and adding 25%.)
After American Enterprise Institute tax expert Kyle Pomerleau published his analysis showing the $310 billion tax cut for the rich that SALT restoration represents, Biden seemingly backtracked. He stopped promising to repeal the SALT cap.
So now, Biden faces a choice: Will he be loyal to the upper-income suburbanites who elected him or to his promise to look after the average worker instead of the elites?
