Recovery Spending and Taxes

 DAVID DAYEN, THE AMERICAN PROSPECT 

You would think there would be more to think about on tax policy than whether upper-middle class suburbanites in high-tax states will be able to get a windfall deduction back. Fifty-five corporations paid no federal tax on their 2020 profits, and actually received $3.5 billion in rebates. And yet the state and local tax (SALT) deduction is the preoccupation of Congress, after several House Democrats from New York and New Jersey said they wouldn’t pass the Biden infrastructure package unless the $10,000 cap on SALT is repealed. House Speaker Nancy Pelosi backed her colleaguesyesterday, saying she would try to include repeal in the package. About 86 percent of the benefits of repealing the cap would go to the top 5 percent of income earners. The White House, to their credit, won’t be including it in the second-half announcement of the overall package. There’s a way out of this box, as the Institute for Taxation and Economic Policy has pointed out. (Disclosure: ITEP executive director Amy Hanauer is our board chair.) You could replace the SALT cap with a "high-income tax" that would require a certain percentage of tax on households making over $400,000 a year, regardless of any deductions. This would eliminate the state-specific character of the SALT cap while maintaining high-income taxes and keeping budget neutrality. And it would force blue-state Democrats to decide whether their objection is their states being singled out, or just taxes on the rich.