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Democrats should not repeal the only good part of Trump’s tax cut

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Here’s a classic example of the narrow interests of the rich having a disproportionate influence, and not just on the Republican agenda:

Why on earth, then, are Democrats fighting — and fighting hard — for a $137 billion tax cut for the richest Americans? Mr. Biden, Nancy Pelosi and Charles Schumer don’t agree on everything, but on this specific issue they speak with one voice: the $10,000 cap on deductions for state and local tax (better known as the SALT deduction) must go.

The House of Representatives has already passed legislation removing the cap, allowing the amount of the deduction to rise. If the Senate turns blue in November, Democrats have promised to return to the issue. “I want to tell you this,” Senator Schumer said in July, “If I become majority leader, one of the first things I will do is we will eliminate” the SALT cap “forever.” It “will be dead, gone and buried.”

The cap was introduced as part of the 2017 Republican Tax Cuts and Jobs Act. Overall, the package was hugely skewed in favor of the rich: 20 percent of the value of the tax cuts went to households whose income was in the top 1 percent. Democrats lined up to decry the changes as a giveaway to the wealthy. And so it was, in the main.

But there was one seriously progressive element, a single diamond in a lot of rough: the introduction of the SALT cap. Lifting it would therefore reverse one of the few good things about the 2017 bill. Almost 60 percent of the benefit of removal would go to the top 1 percent of households (of which 90 percent are white). For the superrich, the top 0.1 percent, repeal would make for an average tax cut of around $145,000 a year. In isolation, this change would be more skewed to the rich than the Republican tax bill as a whole.

What’s going on here? Senator Schumer and others are dressing up the cut in anti-Covid clothes, suggesting that it would help people in decimated cities like New York. This is specious. It is true that potential beneficiaries mostly live in higher-tax cities and states, but it is the richest residents who would reap most of the rewards. This is not a tax cut for those hit hardest by the virus. Families in the middle 60 percent of the income distribution nationally would see, on average, a minuscule reduction in their tax bill, around $25.

While it’s true that the SALT cap was a way for Republicans to stick it to coastal (non-WA) blue states, it doesn’t follow from that that repealing it is a good idea — a tax cut for the rich is a tax cut for the rich even if it primarily goes to rich people in states that have an income tax. There are better ways of encouraging the provision of better social services, most notably by providing money directly.

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