The Republican tax reform of 2017 imposed a $10,000 limit on the state and local tax (SALT) deduction. That new limit raised taxes on high earners in high-tax jurisdictions, which are, of course, often Democratic-leaning. Democrats, and the taxpayers affected, have understandably wanted to get rid of the limit ever since. But getting rid of the limit would obviously be a tax cut that disproportionately benefited the affluent, which is exactly the kind of thing they usually denounce.
Speaker of the House Nancy Pelosi wants the next round of stimulus legislation to raise the cap (retroactively!) in some way that allegedly benefits middle earners and not high earners. Supposedly this will give people more disposable income, they’ll spend it, and the new spending will boost the economy. But even if you buy the macroeconomic theory, lifting the cap is a bizarre way to raise disposable income.
Nor is it obvious how you would be able to provide significant tax relief to the middle class this way. Even with the cap in place in 2018, only about one million of the 16.6 million tax returns that claimed the deduction were for households making less than $75,000.
When President Trump and other Republicans suggested cutting the payroll tax, it was widely criticized because it wouldn’t help the people who needed help (if you’re out of a job, you’re not paying payroll tax) and would help a lot of high earners. But that idea would be much better targeted than lifting the cap on the state and local tax deduction.
The Democrats are, in short, just using the coronavirus crisis as an opportunity to get something they want, whether or not it meets the needs of the moment.