news

House Democrats dealt a symbolic blow to Republicans’ tax code overhaul Thursday on the two-year anniversary of that law’s passage. 

On a mostly party-line vote of 218-206, the House passed a bill that would make good on a top Democratic tax priority: lifting a $10,000 limit on state and local tax deductions, known as SALT. It was amended to prevent households earning more than $100 million from claiming unlimited deductions, however, after a procedural motion offered by Republicans won enough bipartisan support.

The bill would generally give taxpayers a two-year reprieve on the deduction limit Republicans imposed as part of their 2017 tax code overhaul. Taxpayers would be able to write off the full cost of state and local taxes when they file 2020 and 2021 federal returns. The measure would also double the SALT deduction limit for married couples on 2019 returns.

Democrats would make up the $184.5 billion drain in federal revenues over the coming decade by increasing the top marginal tax rate for individuals from 37 percent to 39.6 percent — the same level that existed before the GOP tax overhaul. That rate would be permanent, while the SALT cap would return in 2022 under the bill.

The bill, which the House Ways and Means Committee approved this month on a mostly party-line vote of 24-17, is unlikely to get anywhere in the Republican-controlled Senate. Republicans say the SALT cap is an integral part of their tax law, which lowered tax rates for all income categories. 

But Democratic leaders were under pressure to bring the measure to the floor for a vote since about a dozen freshmen who flipped GOP seats in the 2018 midterms campaigned in part on lifting the SALT cap.

Freshmen Democrats who spoke in favor of the bill on the floor included Mikie Sherrill and Tom Malinowski of New Jersey, Sean Casten of Illinois, Jennifer Wexton of Virginia and Katie Porter of California. All represent constituents with average SALT deductions in 2016 above $15,000, according to the Urban-Brookings Tax Policy Center.

Opposition from Republicans was not universal. Rep. Peter T. King, R-N.Y., criticized his fellow Republicans for engaging in “class warfare” over a bill he said deserves support. “You sound like the progressive left,” King said, turning to his side of the aisle.

Five Republicans backed the bill, all hailing from northeastern states with higher tax burdens. Meanwhile, 16 Democrats voted ‘no,’ a cross section including progressive stalwarts like Alexandria Ocasio-Cortez of New York and Mark Pocan of Wisconsin, and moderates from GOP-leaning districts in lower-tax states including Cindy Axne and Abby Finkenauer of Iowa and Kendra Horn of Oklahoma.

But Republicans sought to turn the tables with a procedural motion intended to put Democrats on the spot. The motion to recommit, from Tom Rice of South Carolina, would prohibit householders with adjusted gross income above $100 million from benefiting, putting the $7 billion in savings into doubling the new deductions for teachers and first responders.

House Ways and Means Select Revenue Measures Subcommittee Chairman Mike Thompson, D-Calif., accepted the language, however. Rice insisted on a roll call vote on his motion anyway, which was adopted 388-36. Rice’s proposal was then adopted as an amendment to the underlying bill by voice vote.

Criticism from left and right

The White House issued a veto threat this week, saying in a statement that the bill “would force all Federal taxpayers to subsidize a tax break for the wealthy.” The Statement of Administration Policy also said the increase in the top marginal rate would “stifle economic growth by placing an undue burden on thousands of small businesses.”

It’s not just the White House and Republicans who were critical of the bill. Left-leaning groups including the Center for American Progress, Center on Budget and Policy Priorities and Institute on Taxation and Economic Policy have all panned the measure as tilted to the rich and a waste of an offset that could be used to pay for more progressive priorities.

Even with the top rate raised to 39.6 percent on taxable income above $441,475 for individuals and $496,600 for married couples filing jointly, the bill would cut taxes on average for wealthier households because SALT deductions are so valuable.

“This bill is a tax cut for the wealthy and a green light for state and local politicians to raise taxes even higher,” said Rep. Kevin Brady of Texas, the ranking Republican on the House Ways and Means Committee. Turning to Democrats, he said, “With this bill, you’ve officially claimed the mantle, ‘party of the rich.’”

According to the Joint Committee on Taxation, in 2021 the total tax cut under the combined effect of removing the SALT cap and raising the top rate would be $61 billion. Of that figure, about 59 percent of the total benefit would flow to households earning more than $500,000, who would get an average tax cut of about $18,000. For millionaire households, the average tax cut jumps to nearly $32,000. 

The benefit is unevenly distributed among the states, however. According to a study by the Institute on Taxation and Economic Policy, just three states — New York, New Jersey and California — would see nearly 59 percent of the benefit. Those three states have 21 percent of the U.S. population, according to census data.

Households in lower-tax Alaska, South Dakota, Tennessee, Texas and Washington state would see net tax increases under the bill, according to ITEP, with all of the adverse impact hitting the wealthiest 1 percent in those states. In California, by contrast, the richest 1 percent would see average tax cuts of nearly $80,000; in New York, that figure is $84,000, and in New Jersey, the average tax cut for the 1 percent is nearly $50,000.

Democrats said the bill would simply even the score with the 2017 tax law, which cut taxes for households in lower-tax states while raising them on their own constituents. Speaker Nancy Pelosi, D-Calif., told reporters earlier that Republicans imposed the SALT cap in order “to punish blue states.”

Rep. Josh Gottheimer, a New Jersey Democrat, released his own model of the bill’s impact on his district’s taxpayers, arguing it would amount to a “massive tax cut … at every income level.” His analysis shows a range of benefits, from $450 for an average family earning $100,000 to a $51,100 tax cut for households earning $2 million.

Gottheimer criticized “moocher states” that pay less in taxes than they receive in benefits, while constituents like his pay taxes that fund critical services in other parts of the country.

Peter Cohn contributed to this report.