Fiscal Policy

Chuck Schumer’s Tax Bailout for Rich Liberals

Senate Majority Leader Chuck Schumer (D-NY) touts Senate Democrats’ legislative accomplishments at a news conference at the U.S. Capitol in Washington, D.C., March 25, 2021. (Jonathan Ernst/Pool/Reuters)
The hypocrisy of Senator Schumer’s effort to repeal the cap on the State and Local Tax Deduction is galling.

Senate majority leader Chuck Schumer claims to be a progressive Democrat and champion of the working class, but he’s pulling every string he can right now to ensure that a tax cut for rich liberals makes it into President Biden’s infrastructure legislation.

Specifically, Schumer is working to include a repeal of the limits the GOP’s 2017 tax-reform package placed on the State and Local Tax Deduction (SALT). The SALT deduction allows citizens to write off their state and local tax bills on their federal taxes, reducing the amount owed in federal taxes for those who face higher taxes locally. In practice, it means that the cost of federal-government spending is not borne equally by all citizens: Richer residents of liberal states pay less of their share than they would otherwise. “More taxpayers claim the SALT deduction in states with higher-tax regimes that provide more government services (e.g., New York, Connecticut, New Jersey, etc.),” the Tax Foundation explains.

It sounds complicated, but it’s actually pretty simple: The SALT deduction gives many wealthy people in blue states a discount on their federal taxes. Schumer wants to remove the limit the GOP placed on the deduction in 2017, so that SALT beneficiaries can write off more and save more on their federal taxes.

It’s no coincidence that Schumer represents New York. Local business leaders and wealthy residents of the Empire State are lobbying the senator to restore their favorite tax subsidy in its entirety, and he’s certainly doing his best. Along with his fellow New York senator, Kirsten Gillibrand, he has introduced legislation to repeal the cap on the SALT deduction altogether. And his latest efforts to see repeal included in infrastructure legislation are just the culmination of his protracted campaign to restore the loophole.

The hypocrisy here is galling.

Senator Schumer has harshly criticized the GOP tax-reform package — under which two-thirds of Americans directly received a tax cut — as a disgraceful giveaway to the rich. “In my long career in politics, I have not seen a more regressive piece of legislation, so devoid of a rationale, so ill-suited for the condition of the country, so removed from the reality of what the American people need,” he said at the time of its passage. “Corporations and the very wealthy are doing great. There is no reason for rushing through a tax break for millionaires and billionaires, paid for by pilfering the pockets and the healthcare of middle-class Americans.”

Yet could there be a better description of Schumer’s efforts to repeal the SALT cap than “rushing through a tax break for millionaires and billionaires, paid for by pilfering the pockets . . . of middle-class Americans?”

According to the Committee for a Responsible Federal Budget, nearly half of the benefits of repealing the SALT cap would go to households earning more than $1 million annually. Just 0.5 percent of the tax relief would go to households making less than $100,000. The liberal-leaning Brookings Institution estimates that eliminating the SALT cap would give members of the top 0.1 percent an average tax cut of nearly $145,000. Meanwhile, members of the middle class would, on average, see a $27 tax cut. Ironically, Brookings also notes that “Lifting the [SALT] cap would in fact give almost three times as much, as a share of the cut, to the top one percent as the [GOP tax] cuts did as a whole.”

So, if Schumer still maintains that he has never seen a more regressive piece of legislation than the Trump tax cut, all he needs to do is read his own bill.

Of course, there’s no such thing as a free lunch. Giving wealthy blue-state households a big tax cut means that either other federal taxpayers have to pick up the slack, or we all have to suffer the now-even-graver long-term economic consequences of mounting government debt.

There was never a valid reason to enact the SALT deduction in the first place. Federal expenditures are (ostensibly) for the national benefit, and it’s just plain unfair to make citizens in some states pay more than others to fund them. More importantly, policymaking is about trade-offs, and right now, wealthy taxpayers in states with large governments are shielded from the full costs of their programs while enjoying the full benefits. That’s a recipe for dysfunction, and the only “upside” is tax discounts for rich liberals who don’t want to pay for what they voted for.

Schumer can continue to push repealing the SALT cap. But he can’t convincingly claim that it’s progressive, fair, or anything but a naked handout for his wealthy constituents.

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