House Democrats have passed landmark legislation to give an enormous tax cut to some of the nation's wealthiest Americans. The bill they approved--President Joe Biden's Build Back Better Act--also makes dramatic investments to tackle climate change, establishes universal pre-K, reduces the cost of prescription drugs, and substantially expands federal assistance for health and child care. But if Republicans have their way, the part of the nearly $2 trillion package the House advanced today that voters will remember is the windfall for the rich.
To secure the support of moderate Democrats, party leaders included a provision that restores a lucrative tax break that former President Donald Trump slashed in his signature 2017 tax law. The House bill would allow people to deduct as much as $80,000 in state and local taxes--or SALT, in the acronym-addicted parlance of the Beltway--from their federal tax bill. Anyone could take the deduction, but those who would benefit the most from the change would be millionaires and even billionaires who reside in high-tax states such as New York, New Jersey, California, and Connecticut.
For a party that campaigned on raising taxes on the rich as a way of reducing inequality, the existence of the costly SALT proposal in the middle of an ambitious progressive bill sticks out like a sore, hypocritical thumb. The policy is no minor throw-in or pet project; its cost as a tax expenditure represents a significant portion of the overall bill and undercuts Biden's goal of reducing inequality by shifting the tax burden from the poor and working class toward the wealthy. Jason Furman, a Harvard economist who served as the chair of President Barack Obama's Council of Economic Advisers, remarked earlier this month that the proposed giveaway for wealthy taxpayers was "obscene." Households making several million dollars a year "could get a $25,900 tax cut," wrote Chuck Marr of the Center on Budget and Policy Priorities, a liberal think tank.
Progressive activists have been desperate for Democrats to pass the Build Back Better Act so that the party's vulnerable lawmakers can start selling its benefits to voters who have soured on Biden in recent months. The president's approval rating was 53 percent in June and is currently a dismal 42.5 percent, according to the FiveThirtyEight average. But they worry that the SALT tax cut will allow Republicans to drown out that message with attacks on Democrats as a party beholden to the elite. "It's just an unnecessarily exposed flank," Adam Green, a co-founder of the Progressive Change Campaign Committee, told me. "We just don't need that in our lives."
The Trump tax bill had limited the SALT deduction to $10,000 as a way to partially offset more than $1 trillion in tax cuts that went disproportionately to the wealthy--and to stick it to Democrats in blue states who voted overwhelmingly against Republicans. Restoring the benefit has long been a priority of moderate Democrats such as Representatives Josh Gottheimer of New Jersey and Tom Suozzi of New York, whose upper-middle-class and wealthy constituents (and donors) took a big hit from the 2017 change.
Originally, Democrats saw the provision as part of a broad repeal of the Trump tax cuts; earlier versions of the "Build Back Better" plan called for raising both the corporate and top individual income-tax rates. But opposition from Senator Kyrsten Sinema of Arizona forced Democrats to ditch those ideas, so that now, the biggest reversal of Trump's tax policy is another cut skewed toward the rich. (To make up lost revenue, Democrats have added a new minimum tax for large corporations.) The scope of the SALT provision within the overall bill is also enormous; over the first five years of the bill, it is the single largest piece of the proposal, Furman told me, costing more money over that period than the Democrats' spending on climate change, education, or health care.
The House version of the SALT tax break might not become law. Senator Bernie Sanders of Vermont has vowed to fight the proposal, and he and Senator Robert Menendez of New Jersey have suggested restricting the benefit to taxpayers under a certain income threshold so that millionaires and billionaires would not see a tax cut. Sanders has proposed a $400,000 threshold, although Menendez reportedly wants it to be somewhat higher. "That would be an improvement," Furman said. "That would mean you didn't have the political obscenity of a bill that gives large tax cuts to people making $5 million a year." But, he added with a chuckle, "I still don't think our priority as a country should be tax cuts for people who make $500,000 a year."
Yet a Senate revision of the SALT provision will not save House Democrats from having voted for a bill that offered tax cuts to the rich. For months, Speaker Nancy Pelosi told her members that she would not make them vote for legislation that could not also pass the Senate. The assurance was aimed at vulnerable Democrats who feared a repeat of 2009, when Democrats opened themselves to campaign attacks from Republicans by voting for a climate bill that ultimately died in the Senate. Pelosi reversed herself, however, when it became clear that Senator Joe Manchin of West Virginia would not commit to a deal on Build Back Better before the House voted.
Republicans are on shaky ground when it comes to hammering Democrats for aiding the wealthy; for decades, GOP tax policy has favored rich people and corporations. But that has never stopped them before. Republicans spent millions to accuse Democrats of raiding Medicare to pay for the Affordable Care Act during Obama's presidency, even though they were simultaneously proposing to convert the beloved public-insurance program to a private voucher system. The GOP is preparing a similar onslaught during next year's midterms. In internal polling by the National Republican Congressional Committee earlier this week, no policy attack tested better than one hitting Democrats for voting to give a large "tax break to wealthy homeowners in New York, New Jersey, and California." The lone House Democrat to oppose the bill, Representative Jared Golden of Maine, cited the SALT provision as his reason for voting no. "Many of my colleagues argue this major line item is worth accepting to pass the rest of the bill," he told the Bangor Daily News. "I disagree."
House Minority Leader Kevin McCarthy cited Golden's argument during a speech that lasted more than eight hours, from last night through this morning, and forced Democrats to postpone their vote. Democrats at first interrupted and heckled the GOP leader, who is hoping to prove his mettle to Trump loyalists in advance of a bid for speaker if Republicans regain the majority next year. But McCarthy's attempt at a filibuster served only to delay the outcome, and by the final hours he was speaking to a mostly empty House chamber and the late-night viewers of C-SPAN.
Both Green and Furman told me that despite their distaste for the SALT provision, they supported passage of the Build Back Better Act because its benefits outweighed its shortcomings. And the SALT provision probably isn't a political loser everywhere: Its backers in New York and New Jersey are convinced it will help them win reelection, and some of them represent competitive seats that Democrats will need to retain their majority.
But passage of the Build Back Better Act was already looking unlikely to be the electoral savior that embattled Democrats need it to be. The enactment of the $1.2 trillion bipartisan infrastructure bill garnered positive headlines for Biden and his party across the country earlier this month, yet it appears to have had no immediate impact on their slumping approval ratings. Nor has the more tangible ongoing benefit of the child tax credit, which Congress passed in the spring and is still depositing hundreds of dollars into the bank accounts of millions of American parents.
Democrats hope that if Biden's economic plan can pass the Senate, a sustained campaign touting its policies will turn those numbers around by next fall. But for now, the biggest risk for Democrats is that they have muddied that message by advancing a tax cut for the rich, and that a bill replete with popular proposals will instead become known for the provision that voters like the least.