The Heroic Congressional Fight to Save the Rich
A handful of Democrats want to hold up a $2 trillion infrastructure bill to save a choice tax deduction for the wealthy, not that you'll hear it described that way
Josh Gottheimer, Democrat of New Jersey, made an inspired plea recently. The Harvard man and Alpha Epsilon Pi brother is a member of the so-called “SALT caucus,” a group of congressfolk threatening to hold up Joe Biden’s infrastructure bill if it doesn’t include a full repeal of a Donald Trump-imposed $10,000 cap on deductions of state and local taxes.
“It is high time that Congress reinstates the state and local tax deduction, so we can get more dollars back into the pockets of so many struggling families,” intoned Gottheimer, one of 32 members of the SALT caucus, which includes 8 Republicans.
Pressure on Biden to repeal the SALT cap has been amping up, mainly from tri-state Democrats like Gottheimer, fellow New Jerseyan Bill Pascrell, and Tom Suozzi of New York. “No SALT, no deal!” the trio power-tweeted a few weeks back. Just a few days ago, Gottheimer even came up with a new way to argue the plan, offering to pay for the repeal of the SALT cap by increasing audits.
“There is a way to do this by going after what people owe already,” he said.
The effort by the “SALT caucus” to hold a $2 trillion relief bill hostage in order to help what they’re calling “struggling families” in the “middle class” is just the latest development in a years-long saga revealing Congress at its phoniest and most shameless.
This issue that “means so much to the American people,” according to House Speaker Nancy Pelosi, is really a niche matter concerning a sliver of the most well-off Americans in a handful of blue states, who were made the target of a political prank of sorts by the Trump administration in 2017.
There are a lot of people who own homes in blue states, could use the deduction, probably don’t think of themselves as rich, and would balk at the idea that repealing the cap would be a luxury giveaway. The story has been framed in the press as more of an everyman issue, and the fact that most of the money at stake involves people at the very top of the curve has been obscured.
The start of this story was classic Trump. Looking for ways to help pay for his own monster tax break at the end of 2017, the Donald decided to poke Democrats with a long stick, via the cap on the unlimited state and local tax deduction.
“He did it for all the wrong reasons,” says David Sirota of The Daily Poster, “but it was the one progressive thing he ever did.”
Economist Stephen Moore, who advised Trump, called the cap “Death to Democrats.” On October 11th, 2017, Trump explained to an approving Sean Hannity that he, Trump, was just trying to help states with fiscal problems help themselves. Note the loving repetition here of the word, “borrowing”:
You know, you have some really well-run states that have very little borrowing. Some have no borrowing, very little borrowing. And it's unfair that a state that is well-run is really subsidizing states that have been horribly mismanaged. I won't use names, but we understand the names. But there are some states that have hundreds of millions and billions of dollars in borrowing.
However, the SALT cap didn’t so much go after “Democrats” as “affluent Democrats.” It only applied to people who itemize their taxes, which meant the 90% of Americans who take the standard deduction were unaffected. The deduction raised over $70 billion in just the first year, and roughly 56% of that money came just from the top 1% of taxpayers, living in a few states in particular.
The tax nastygram seemed directed at Trump’s hometown delegation. Congresswoman Carolyn Maloney in April of 2017 complained about the cost of protecting “Trump and his family here in NYC”; the SALT cap affected 19% of Maloney’s constituents in Brooklyn and on the Upper East Side, and taxpayers in that 19% each lost an average of $100,405 in breaks. Chuck Schumer, one of Trump’s fiercest critics, personally took over $58,000 in SALT deductions just in 2016.
Overall, 39 of the 40 districts most affected by the SALT cap were represented by Democrats. Of those, 28 came from New York, New Jersey, and Connecticut. Also affected: Nancy Pelosi’s San Francisco district, where residents lost an average of $53,471 of write-offs. Trump’s campaign promises to take on “elites” proved phony, except when he was able to effect this targeted partisan strike at the people he knew and hated the most: rich, socially liberal Democrats, especially ones from the tri-state area.
The joke ended up being on them, but at the time, the gloat factor in the Trump White House was enormous. The administration’s vermian Treasury Secretary, former Goldman Sachs banker Steve Mnuchin, boasted that he was using the SALT caps to hoist blue states on their own fiscal petard. “I do hope this sends a message that, perhaps, they should try to get their budgets in line,” he said.
Politically, the SALT cap was like a kids’ prank, putting a dogpile in a paper bag and setting it on fire on a neighbor’s stoop: you can’t let it burn, but you don’t want to step in it, either. For Democrats, letting it go would draw hell from top donors, while fighting back would surely invite accusations of prostituting for the wealthy. What choice would they make?
Almost universally, Democrats united behind a repeal, arguing with a straight face the SALT cap did not benefit the affluent, but “families,” the “middle class,” and “working people.”
A common theme was that even if the tax break didn’t directly affect most, it indirectly hurt everyone, since ordinary people would be denied “essential services” as a result of overall decreased tax revenue (a “backdoor hit to every taxpayer around the country” was how Chicago congressman Danny Davis put it). Beyond that, Democrats cried, the plan was unfair. Pelosi’s formulation was that the SALT cap was not just “devastating” (!), but “mean-spirited” and “politically motivated.”
Within a year after the cap was imposed, a quartet of states led by New York filed a 52-page federal lawsuit — State of New York, State of Connecticut, State of Maryland, and State of New Jersey v. Steven Mnuchin — challenging the cap’s constitutionality. New York Governor Andrew Cuomo led the fire-and-brimstone brigade.
“The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it,” Cuomo said, adding that he was “proud to announce that New York is the first state in the nation to take legal action against Trump’s tax plan that benefits the 1 percent at the expense of middle-class families.”
That was an odd way to put it, since the SALT cap overwhelmingly affected the 1%. As the Brookings Institute pointed out, the SALT cap in its distribution of benefits was actually more regressive even than Trump’s infamous Tax Cuts and Jobs Act (TCJA), which Democrats denounced as a handout to the rich:
After the midterm elections of 2018, members on the Hill whispered to any reporter who would listen that the Democrats’ success had been driven by popular outrage over the SALT fiasco. The cap was “one of the major reasons the House flipped from Republicans to Democrats,” said Chuck Schumer, and the data bore him out: Democrats picked up 15 seats in the 50 districts that had the highest rate of voters claiming the deduction, while picking up just two in the bottom 50 such districts.
But what did that mean? Was there widespread popular anger about the SALT cap, or was this just another demonstration that “Democratic support has been increasing for years in higher-income, highly-educated areas,” as the Tax Policy Center noted?
It’s not outlandish to think the SALT episode played a role in speeding what’s been a long-developing transformation of voter bases, with Democrats more and more rapidly taking over the Bill Buckley bedroom communities that Republicans used to dominate. At minimum, the SALT issue inspired mindfreak rheotrical spectacles like Mitch McConnell arguing against a tax on “wealthy people,” and Ted Cruz defending the caps by saying, “The only people whose taxes are going up are the really rich.”
The new Democrats elected in 2018 ended up providing the core of the “SALT caucus” with California’s Katie Porter and Mike Levin, New Jersey’s Mike Sherrill, Andy Kim, and Tom Malinowski, and Lauren Underwood from Illinois among the members. Since Biden’s win, the SALT warriors redoubled efforts for repeal, with the impressively shameless Suozzi denouncing the cap as an “existential” problem and a “body blow to New York and middle-class families throughout the country.” Other caucus members similarly went all-out in describing a repeal of the SALT cap as something like the second coming of the Tennessee Valley Authority.
“The SALT cap penalizes working-class Long Islanders,” said New York’s Andrew Garbarino. “From firefighters to police officers, to teachers, to nurses, and small business owners, I hear from people every day about what a crushing blow the SALT cap has delivered them.”
“SALT does in fact make a critical difference in helping make ends meet for our middle-class residents like teachers and law enforcement officers,” said Sherrill.
“The cap on the state and local tax deduction hurts middle-class California families,” said Porter.
All this propaganda put the national press in a bind. According to Trump-era custom, mainstream publications rarely use words like “lie” in conjunction with Democrats, and never phrases like “open political whoring.” The bulk of coverage of the SALT debate therefore relied on euphemisms and weasel words, with one outlet after another reaching for headlines that didn’t describe a transparent effort to lower taxes at the top of the top income bracket.
A popular take was to depict the SALT dilemma as a “challenge” or “risk” for Democrats. “California Democrats should make gutsy move on taxes,” wrote a columnist for the San Jose Mercury-News. “Democrats Get Clout Needed for Risky Bid to End Trump’s SALT Cap,” added Bloomberg. “California Democrats have a chance to flex some muscle and work to restore deductions for taxpayers,” wrote the Los Angeles Times.
The New York Times was most creative. “SALT Tax Increase That Burned Blue States is Targeted by Democrats,” read an effort from 2019, noting the party’s effort to restore a “popular tax break.” The Times later went with “Pelosi Floats New Stimulus Plan: Rolling Back SALT Cap.”
They were also one of many outlets to describe the Democrats’ position on SALT as “uncomfortable” or “awkward,” as in, “The state and local tax issue is in some ways an awkward one for Democrats, because they are trying to restore a tax break that primarily benefited relatively high earners.”
My personal favorite came from Wall Street’s Old Faithful, Andrew Ross Sorkin, who hosted a debate on Squawk Box between Suozzi and onetime antitax crusader Mick Mulvaney. Reading off a question to Mulvaney from what Sorkin called an “astute” viewer, he suggested paying state tax was like paying tax to a foreign country:
If a U.S. citizen pays income tax today to a foreign state, to a foreign country, they get an uncapped foreign tax credit… to their federal tax liability. However, if they pay to a domestic state, right, like New York, they get capped. Does that make any sense to you in the world?
Missing most from coverage has been any indication of the sheer size of the amounts at stake. Even in light of the news that the Biden administration is “eyeing” a capital gains increase that could generate $370 billion over ten years, that’s still way short of the $600 billion in revenue over ten years that would be sacrificed if the SALT cap is repealed.
The Biden administration, incidentally, has yet to line up behind Pelosi and Schumer and back a repeal of the cap, and a lot depends on their decision. Among New York’s congressional delegation, just a few members have not backed the SALT cap repeal, including Alexandria Ocasio-Cortez (who called a potential repeal a “gift to billionaires”).
In yet another example of the upside-downness around this issue, some of the only attempts to speak in plain language about SALT have come from the financial press, where Forbes wondered if Democrats would cut taxes “for the rich” and Yahoo! Finance said this was one tax break the Democrats should “grant the wealthy.”
Beyond that, only a handful of voices like Richard Reeves at Brookings and Sirota from the Daily Poster have evinced much interest. Democrats have mostly succeeded in painting the matter as an assault on partisan dignity.
Sirota, who worked for the Bernie Sanders campaign in 2020, tells a story about getting an email from a Long Island-based finance professional who was furious about the SALT cap, adding, “I have the courage to wear my Bernie hat on the floor of the New York Stock Exchange.” Sirota tweeted: “We are in hell.”
In one Poster piece, Sirota talked about how the SALT debate arose in the context of messaging that appears with increasing frequency in pop culture and the press, about how hard life is in the top tax bracket. The classic of the genre was a Times piece from 2009 entitled, “You Try to Live on 500K in This Town,” but, he notes, it started earlier:
In the lead-up to the financial crisis the Washington Post insisted that a family making $300,000 is just “squeaking by.” Fast Company has told readers about a family supposedly living “paycheck to paycheck” on $325,000 a year. CNBC insists that it costs $350,000 to be middle class in a big city. And the New York Times has insisted that earning only $500,000 a year makes it difficult to live in a Big Apple where the median annual household income is $60,000.
There are legitimate reasons to be in favor of restoring the full deduction, but instead of talking about them, Democratic leaders and pundits have mostly been trying to sell the public on an absurd lie: that a tax break for which only 1 in 10 Americans even qualifies, and overwhelmingly benefits those in the highest-earning percentile, is a “middle-class” benefit. No one seems to mind that this is the same take Democrats blasted when used by Republicans to argue for the Bush tax cuts or the repeal of the estate tax.
After the midterms in 2018, former CNN Senior Political Analyst Bill Schneider said the Democrats were “becoming a party dominated by educated, upper-middle-class, liberal whites,” analysis that was borne out in 2020, when gains among that exact demographic helped Democrats win back the White House from Trump. It would be surprising if they didn’t develop economic policies to match, and the “SALT caucus” is a big step in that direction.
I spent 30 years as a tax professional at the top of my profession. The SALT deduction should not be reinstated, it’s terrible tax policy. It was passed to put pressure on states who’s fiscal house was in ruin, to force fiscal responsibility on those who’s spending was out of control. Too many times this is portrayed as a political matter, blue vs. red. But that’s a false narrative. States who rely on the wealthy to fund their largess have a spending problem, not a revenue problem. Reduced spending, reduce your tax rate, eliminate useless overhead from school boards and get your pension obligations under control. Then perhaps people will want to immigrate to your state and lift up all boats in the water.
Truly astonishing. Democrats have for as long as I can remember argued, correctly in my opinion, that people (especially the rich) should pay more in taxes. So here we are, paying more taxes (myself included!) and now its the Democratic party arguing the rich are taxed too much. When I say that I'm not quite sure what the Democrats stand for any longer, this SALT deduction brew-ha-ha is one of the big reasons why.