As Congressional Democrats debate what to include in their Build Back Better (BBB) legislation, a major focus has been on if and how to raise taxes on corporations and the richest households. But recent analyses find one component of the House's BBB bill could actually result in a tax cut for many high-income households.
In their most recent BBB plan, House Democrats included an adjustment to the cap on the amount of state and local taxes that filers can deduct on their federal returns. Rather than capping the deduction at $10,000 a year, the new plan would increase it to $80,000 through 2030. It would then be reduced back to $10,000 for 2031, after which the cap would expire altogether.
The SALT deduction is meant to ensure that people, especially in high-tax states, don't double pay taxes on certain services provided by their states or localities, like for education or transportation.
Democratic lawmakers say the increase is needed to help middle-class families who have been "unfairly double taxed" since the cap was imposed in 2017's Tax Cuts and Jobs Act. Prior to that, there was no cap on SALT deductions.
The Democrats' new adjustment "would provide little or no benefit for low and middle-income households but [would] generate a substantial tax windfall for those with much higher incomes," according to the Tax Policy Center (TPC). TPC's analysis is based on an increased $72,500 cap.
In fact, just 1.6% of families earning between $54,000 and $96,000 would benefit from the SALT cap increase, TPC finds. The average tax cut: $20. Those earning between $100,000 and around $175,000 would save around $90 on average.
At the same time, more than half of families making between about $254,000 and $366,000, those in 90th to 95th percentile, would get a tax cut, and three-quarters of those earning between $366,000 and $867,000, the 95th to 99th percentile, would. They would see an average tax cut of around $4,600, per TPC.
BBB is meant to provide relief to middle class households while raising taxes on the wealthiest families. But Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities, writes that the SALT tax cut would do the opposite.
"There's no way to justify these tax cuts as 'middle-class' tax relief," Marr writes. "They are particularly egregious given that BBB aims to provide the most help for low- and middle-income households while reducing tax advantages for wealthy households."
The debate over the SALT tax increase has reportedly become a sticking point in budget negotiations. Sens. Bob Menendez, D-N.J., and Bernie Sanders, I-Vt., have floated the idea of increasing the cap only for households earning under a certain income, but it is not clear if other Democratic lawmakers will agree to that.