Biden’s big bill could depend on a tax deduction provision

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WASHINGTON – A controversial provision in the Build Back Better Act passed by the House to extend a federal deduction for state and local taxes is in the sights of Senate Democrats drafting their version of the sweeping benefits bill and the climate.

The $ 1.85 trillion bill passed by the House is funded by tax hikes on the rich and on business, but it includes an increase in the federal deduction for local taxes that has been strongly criticized by the liberals and republicans as a benefit to the wealthy nationwide.

“In an era of skyrocketing income inequality, our priority should be helping working families, not tax breaks skewed in favor of the rich,” said Representative Dina Titus, D-Nev.

Titus called the increase in the deduction “unfortunate”. She supports increased social spending and programs in the bill for education, health care, lower taxes for the middle class and initiatives to fight climate change.

She said the bill still contained an amended cap on the federal tax deduction for state and local income taxes.

“I do not support lifting the ceiling altogether as is discussed in the Senate,” Titus said.

Residents of Nevada and low-tax states see little benefit from the deduction, but lawmakers in the northeastern states and California, which impose state and local income taxes, argue that the deduction helps middle-income families. It allows residents to deduct state and local income taxes and property taxes from their federal tax bill.

It was incorporated into the Build Back Better Act, which was passed earlier this month on overwhelmingly partisan principles, 220-213. Only Democratic Representative Jared Golden of Maine, who protested the inclusion of the deduction, voted against the bill.

The Nevada congressional delegation voted across parties to pass the comprehensive package, which would extend pre-kindergarten education to thousands of children in the state, make more residents eligible for health care under the health insurance, reduce prescription drug costs for seniors, and expand the child tax credit.

Nevadans oppose deduction

No member of the Nevada delegation argued for the national and local tax deduction.

In fact, Rep. Susie Lee, D-Nev., Voted against repealing the deduction last year when it was introduced to the House as a stand-alone bill.

“As Congresswoman Lee fought against raising the SALT tax deduction cap, she supports the Build Back Better Act because there is so much in this bill that will help working families in Nevada.” , said spokeswoman Zoe Sheppard.

Rep. Steven Horsford, D-Nev., A member of the House Ways and Means Tax drafting committee, helped draft the Build Back Better legislation that included an extension of child tax credits which helped voters in his predominantly working-class district, but not the national and local tax provision. This was added to the bill in an amendment before the House vote.

Republicans put a $ 10,000 deduction cap in place in their 2017 tax cut bill, which lowered tax rates for wealthy workers, corporations, and businesses. It expires in 2025.

At the time, House Speaker Nancy Pelosi, D-Calif., Said the deduction from the GOP’s tax cut bill was politically targeting blue states.

The in-house version of Build Back Better has increased the cap from $ 10,000 to $ 80,000. It would cost the US Treasury $ 290 billion in revenue, according to the Congressional Budget Office.

Republicans claim the benefit for wealthy families undermines President Joe Biden’s message that the Build Back Better Act is funded entirely by tax hikes on the wealthy.

Overall, the Congressional Budget Office analysis estimated that the $ 1.85 trillion bill would add $ 160 billion to the deficit over 10 years. That projection did not include revenues, Democrats said, that would come from increased enforcement of current tax laws by the Internal Revenue Service.

The Senate adopts the bill

Senators return this week from the Thanksgiving vacation with negotiations to continue drafting their version of the social spending program billed as an economic boost for working Americans.

Republicans are united in their opposition to the bill and have seized state and local tax deduction to fight it.

Some Democrats winced at the deduction. Right-wing and left-wing tax policy think tanks agree that it benefits the wealthiest in high-tax states while doing little or nothing for working-class families, especially those in low-tax states like Nevada. .

“You can’t talk about taxing the rich and then giving them tax break,” said Sen. Bernie Sanders, I-Vt.

Sanders is seeking a compromise that would limit the deduction to those earning less than $ 400,000 per year. He works with Senator Bob Menendez, DN.J. on a compromise supported by Nevada senators.

Senator Catherine Cortez Masto and Senator Jacky Rosen, both Democrats from Nevada, said the Build Back Better Act should focus on tax cuts for the middle class and costs for state residents.

Cortez Masto, through a spokesperson, is supporting the negotiations and ensuring that “the SALT cap adjustments are more focused than the House proposal.”

A spokesperson for Rosen said the senator wanted any change in the deduction limit to be “more closely aligned with helping middle-income households.”

In the White House, spokeswoman Jen Psaki said the deduction was not part of the president’s original agenda, but part of a compromise to move the bill forward through the Senate.

“The president’s enthusiasm about this is not about the SALT deduction,” Psaki said during a White House press briefing. “These are the other key components of the package, and this is why we continue to push for it to move forward.”

Exemption details

House lawmakers raised the cap from $ 10,000 to $ 80,000, increasing the cost of the Build Back Better law by about $ 300 billion, according to the Tax Foundation, a right-wing think tank.

According to the Tax Foundation’s analysis, about 98 percent of the benefit would go to families with six-figure incomes.

According to the Tax Policy Center, a left-wing think tank made up of policy experts from the Brookings Institution and the Urban Institute, only 11% of households currently benefit from the deduction. The benefit goes to high-tax coastal states, according to studies by liberal and conservative tax policy analysts.

Seven states, California, New York, Texas, New Jersey, Maryland, Illinois and Florida, have claimed more than half of the deductions nationwide, according to the Tax Foundation.

California claimed the most, around 19.8 percent, with an average benefit of around $ 20,000.

Nevada, without state income tax, accounted for just 0.59% of deductions, with an average deduction of $ 6,400. It ranks in the bottom third of states with residents claiming the benefit, according to the Tax Foundation’s analysis based on figures from the Internal Revenue Service.

In Nevada, the benefit has disproportionately helped high income earners.

Still, Democrats in high-tax states such as New York, New Jersey, California, and Maryland claim that the state and local tax deduction has helped middle-class families who have paid home income taxes. State and local, as well as property taxes to provide essential services like education, parks and social programs.

Democrats view the cap as a Republicans-imposed Blue State penalty, amounting to double taxation, while Republicans view it as a Blue State benefit.

“They are both a little right,” according to the analysis of the Tax Policy Center.

Republicans – whose 2017 tax cut plan was passed by the wealthy and business executives – enjoyed turning the tide on Democrats for giving tax relief to the wealthy.

Conservative campaign groups like Heritage Action for America and the National Republican Senate Committee have previously used the provision as an election year problem, targeting Democrats in competitive races like Lee and Cortez Masto in Nevada.

Progressives also object that it is difficult to argue for a social spending program that forces the rich and corporations to pay their fair share while giving tax relief to the top earners. Sanders joked that the wealthiest Americans under the increased deduction would be “better off than they were with Trump.”

Rep. Kevin Brady, R-Texas, the Ways and Means ranking Republican, claimed the Democratic bill offered a benefit to the penthouse and at the janitor’s expense.

“Where are their priorities? Brady said during a speech in the House on the bill. “The SALT windfall for the rich is 50 times more than the help a parent is supposed to receive from the child tax credit.”

Republican Representative Mark Amodei, R-Nev., Voted against the Build Back Better Act and the repeal of the state and local government tax deduction at the last Congress. He voted for the 2017 tax cut bill that caps the deduction.

Even the compromise Sanders sought would reduce the cost of the deduction to between $ 150 billion and $ 200 billion, according to the Committee for a Responsible Federal Budget, a right-wing advocacy group.

Senator Ron Wyden of Oregon, chairman of the Senate Finance Committee, referred questions about the national and local tax deduction to Senate Minority Leader Chuck Schumer, DN.Y., who supports it. Other senators from high-tax states are also calling for a higher cap on the deduction, or its elimination after it expires.

Schumer wants the chamber to vote on the Build Back Better Act before the Christmas holidays. Any revision of the law by the Senate would require further action by the House. There are a half-dozen members of the Democratic House, led by Rep. Tom Souzzi, DN.Y., who insist on raising the cap on the deduction.

Known as the “SALT Caucus,” members have enough votes to prevent final passage of the Build Back Better Act if it comes back to the House with a provision they don’t want. “No SALT, no dice,” they said in a statement.

Contact Gary Martin at gmartin@reviewjournal.com. To follow @garymartindc on Twitter.



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