Democrats are trying to sneak in a massive and unnecessary tax cut for the rich as part of their Build Back Better plan. It's absurd.

Drew Angerer/Getty Images: House Speaker Nancy Pelosi, Senate Majority Leader Chuck Schumer
Congress included in the Build Back Better plan a proposal to raise the cap on local and state tax deductions.

This is basically a tax cut for most wealthy Americans.

This deduction must be eliminated by Congress. Taxpayer dollars should not be used to support the wealthy.

Gary Haglund, a senior analyst in fiscal policy at Americans for Prosperity, is Gary Haglund.

This column is an opinion piece. These thoughts are solely the author's.

President Joe Biden, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer repeatedly stated that the so called Build Back Better Act would be an historic investment in low and middle-income families, paid for by raising taxes on the rich. Despite being initially excluded from Biden's Build back Better framework, Democrats now plan to include changes in the final reconciliation bill to increase the deductions for state and local taxes (SALT). Reports indicated that lawmakers were close to a deal to repeal the retroactive $10,000 SALT cap, which was established as part of tax reform. House Democrats presented a proposal the next day that included changes to retroactively raise the SALT cap from $10,000 to $72,500 through 2031. Both of these options would result in a tax cut for those who are wealthy and a regressive approach.

The annual cost of removing the cap on SALT deductions is approximately $90 billion. However, raising the $10,000 cap to $72,500 to $50 billion annually would increase the cost to the taxpayers through 2025 when the current law expires. Both proposals favor high-income households, while bringing little or no benefit to the lower and middle classes. It would reduce the fairness of our tax code and create tax disparities solely based on where you live.

Experts from all ideologies, including the Tax Policy Center, Americans for Tax Reform and the Tax Policy Center, agree that increasing or repealing the SALT cap is regressive, poorly targeted and poorly targeted. Yet, lawmakers brazenly claim that repealing the cap will be a boon for the middle class. It is impossible to be more wrong.

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The SALT cap will be repealed only if it is in the best interests of the wealthy.

Let's find out who really stands to gain from the removal of the SALT cap. Brookings Institution estimates that the top 20% of earners will receive 96% of the benefit and the top 0.1% would get an average tax cut of $154,000. On the other side, the bottom 60% of earners would receive only 0.8% of the benefit.

Even if Congress decided to raise the cap instead of repealing it, the change would still have a high degree of regressive effect. According to the Tax Foundation, under a $72,500 SALT limit, 80% would go to people earning over $200,000 while only 2.5% would go for those earning less than $100,000. According to the Committee for a Responsible Federal Budget (CFRFB), the highest earners would receive a $23,000 annual tax reduction. SALT cap changes, no matter how they are interpreted, end up benefiting the rich at the expense low- and middle-income households. SALT cap repeal would be a huge benefit to high-earners from certain states that have high local and state taxes. According to one estimate, more than half of the benefits from SALT cap repeal would go to four states: California New York, New Jersey and Illinois.

People with similar incomes and life situations should share the federal tax liability as it is fair. It is impossible to reinstate the full SALT deduction. This would mean that people living in similar situations in low-tax state will have to pay a higher federal tax bill than their counterparts in high-tax state. Simply put, those in low-tax states tend to pay more for federal services. This is unfair and represents an income transfer between low-tax states and high-tax ones.

To pay for it, the government would need to increase taxes

This reconciliation bill includes a tax cut for the wealthy. It could also mean that there may be other tax increases to offset it. The government will lose approximately $475 billion in revenue over five years of retroactive repeal. This cap expires at 2025. The nonpartisan Joint Committee on Taxation calculated that raising the top federal corporate income tax rate from 26.5% to 26.5% would bring in $480 billion over the first nine years. This is nine years of revenue generated by one economically harmful tax increase that will pay for five years worth of tax cuts for rich people.

The cost to raise the cap from $72,500 to $72,500 is $222 billion through 2026. However, it would increase revenue by $2 billion through 2030. The current SALT cap expires at the end 2025. Therefore, raising the cap to $72,500 through 2031 will raise revenue in the latter years. This gives the impression that the SALT cap increases are offset. This is a Washington accounting trick.

There are many bad policies in the so-called Build back Better Act. It would raise taxes on the middle-class, decrease wages, increase prices and shrink the economy. While it would be unjustifiable for Democrats, including such a obvious benefit to wealthy households in the package is not surprising, given other carveouts to particular interests, it should.

Instead of increasing or repealing the SALT cap, lawmakers should abolish the deduction entirely or at least maintain the $10,000 limit established by the 2017 tax law. It is wrong for taxpayer dollars to be used to subsidise wealthy families that live in high-tax states.

Business Insider has the original article.