The Chairman of the powerful House Ways and Means committee, Rep. Richard Neal (D-MA) has filed legislation that would repeal the cap on the federal deduction for state and local taxes that was put in place by the Tax Cuts and Jobs Act of 2017. In order to pay for the repeal of this “SALT cap,” the bill would raise the top income tax rate.
But more than 95 percent of the benefits of repealing the SALT cap would go to the top 20 percent of income earners; more than half would go to the top 1 percent. Worse, according to the Joint Committee on Taxation, increasing the top tax rate will raise approximately $29 billion in 2021, while repealing the SALT cap will cost approximately $89 billion.
There are better options. A competing proposal – also by Democrats – would expand and modify the Earned Income Tax Credit and Child Tax Credit in a way that would benefit 46 million households, primarily those with lower and more moderate income. The overall poverty rate would fall to 12 percent from 14 percent, and the child poverty rate would drop even farther, from 15 percent to 11 percent if this legislation were enacted.
The best part? The estimated cost of the Working Families Tax Relief act would be $89.6 million in 2021, almost identical to the cost of repealing the SALT cap.
Public policies are always about trade offs, but rarely are the options so clear:
Is $89 billion in revenue better spent on tax breaks for wealthy homeowners, or would it be better to address the United States’ embarrassingly high child poverty rates?