Thousands of households in Southern California saw their tax bills drop significantly in 2022, when the House passed a social spending plan that allows residents to pay state or local tariffs on federal income already used. Allows you to avoid paying taxes.
The $2 trillion Build Back Better Act approved by the Democrat-controlled House calls for increasing the allowed federal deduction, or SALT, for state and local taxes from the $10,000 annual cap set during the Trump administration to $80,000 a year. . This allows upper middle class residents who reduce their taxes to write off a large portion of their property, sales or state income tax bills.
“Raising that state and local tax cap would be a significant tax cut and tax relief for our Southern California communities and California as a whole,” said Rep. Katie Porter, D-Irvine, who estimates 37% of taxpayers in their 45th year. Huh. The district is dependent on salt reduction.
But the proposal still has to pass the divided Senate. And while some complex political dynamics can make this difficult, both Republicans and Democrats align against the ideals they generally support.
hard lines, fuzzy lines
While Porter and other local Democrats are leading the charge to lift the SALT cap, other progressive leaders, such as Senator Bernie Sanders of Vermont, are fighting to preserve some form of Trump-era policy. They cite data that shows that lifting the cap would primarily benefit wealthy Americans – a move largely in stark contrast to left-wing plans to fund social and climate spending by raising taxes on the wealthy.
The change in the SALT cap is the reason why Rep. Jared Goldman of Maine was the only House Democrat to vote against the Build Back Better Act. He added that increasing the tax deduction “gets thousands of cash backs to millionaires.”
While millionaires would benefit from the policy change, Porter and other proponents of raising the SALT cap note that, in places like Orange County, a family of four earning $175,000 is considered middle class due to the high cost of living. And for families in that income bracket, a higher SALT cap could mean paying thousands less in taxes.
That’s why Democrats and Republicans in competing districts of Southern California have found rare common ground in recent years, with members on both sides pushing for a change to the SALT cap, as it would allow homeowners in places like Los Angeles and Orange counties. Will be of particular benefit, where home prices and taxes are high.
But this year, as the House version of Build Back Better was negotiated to include a new SALT limit, the bill received no support from House Republicans, with some saying they want tax changes.
Rep. Mike Garcia, R-Santa Clarita, released a video to explain that he opposes Build Back Better, even though it would lower the tax bill for many in his district.
“It won’t make America better, it will make it worse.”
The debate began four years ago, when Republicans in the House and Senate voted in favor of President Donald Trump’s tax plan.
Before 2017, Americans could deduct any amount they paid in state and local taxes from their federal income. The 2017 law limited those SALT deductions to $10,000 by 2026 to help pay for Trump’s lower tax rate cuts for wealthy Americans.
So, while most Americans saw a modest reduction in tax under Trump’s plan, the estimated 11 million Americans who live in places where home values and state and local taxes are high have seen their taxes increase.
The California Franchise Tax Board estimates that 751,000 California households earning less than $250,000 have had to pay an additional $1.1 billion annually since the law went into effect in 2018, or about $1,460 more per family per year. In CA-45, which stretches from the Anaheim Hills through Irvine, Porter’s team estimates that the average family saved $22,000 by taking advantage of the SALT deduction is now capped at $10,000.
The tax hike primarily affected residents in blue states, which Trump described as a matter of pride.
“It was designed not to collect revenue to invest in our economy, but to use the tax code to politically punish certain states,” said Porter, who first Won her seat in 2018 on a campaign that involved protests. Trump tax plan.
“States are going to make different choices about their taxation systems, and they do,” Porter continued. “But I don’t think the federal government should be increasing that inequality. I think it should treat taxpayers equally, regardless of the state they live in. And to do that, we either have to completely Will have to raise, or raise that SALT cap.”
time is also a factor
Raising the SALT cap would cost the federal government an estimated $300 billion over the next five years. To offset those losses, Democrats want to double down on how long the policy will last. While Trump’s plan eliminates the $10,000 cap in 2026, the Build Back Better Act expands the $80,000 cap through 2030, briefly restores the $10,000 cap for one year, 2031, and then The following year eliminates the cap entirely. Porter said the change makes it “revenue positive.”
But analysts say the higher SALT cap will temporarily offset some of the tax hikes on the wealthiest Americans from the Build Back Better Plan to help fund policy priorities such as child care assistance and climate change protection. That’s why Sanders and Sen. Bob Menendez, D-New Jersey, plan to change the House resolution so it removes the SALT cap only for those earning less than $400,000 and phases it out for those with higher incomes. does.
Porter, who serves as deputy chairman of the Congressional Progressive Caucus, said she is talking with Sanders and Menendez, and is optimistic they will reach a settlement and some SALT cap reforms in the final version of Build Back Better. will pass.
Democrats can’t afford to lose a vote in the Senate on something like a SALT cap or they’ll jeopardize President Joe Biden’s entire landmark legislation — and possibly hurt his own prospects in 2022.
Despite several local GOP congressmen campaigning last year on a promise to repeal the SALT cap, no House Republicans crossed party lines to vote in favor of the Build Back Better plan.
In a statement explaining his protest, Rep. Young Kim, R-La Habra, – who has supported standalone bills to lift the SALT cap – called the Build Back Better Act a “reckless spending and tax increase plan.”
Kim cited estimates from the Tax Foundation that said Californians would pay $14,095 more in taxes over the next 10 years. However, the Tax Foundation said those figures – which estimate how the increase in corporate taxes will go down for individuals – come from an analysis they did on Biden’s original 2022 budget. The foundation has not yet completed state-by-state estimates for the effects of the Build Back Better Act, but said they expect any increase to be “slightly short” as the bill’s overall cost is also low.
Those estimates also don’t include any new revenue collected through the beefed-up Internal Revenue Service. Kim – who cited opposition to the bill because he believes it would increase the national deficit – said he is against further funding for tax collections. The $80 billion that Build Back Better would allocate to the IRS by doubling its number of agents would, in Kim’s view, make it possible for the IRS to “spy on Americans’ finances.”
Democrats argue that giving the IRS more resources allows the agency to better enforce the tax laws already on the books. The Treasury Department estimates that a beefed-up IRS will collect enough in currently unpaid taxes to pay for other parts of the Build Back Better Act.
Locals who plan to run against GOP office-bearers in the House race next year see the vote against Build Back Better as a political windfall.
“Orange County families are being taxed twice on the same dollar, and Michelle Steele’s solution is to vote against the SALT tax cap repeal in the Build Back Better Act,” said Harley Rouda, D-Laguna Beach, who founded CA-48. Flipped the seat, said in 2018, Rep. Michelle Steele, lost to R-Seal Beach in 2020 and is running against them again in 2022.
Meanwhile, despite targeted local Republicans Garcia, Steele and Kim supporting the SALT cap amendment, the National Republican Congressional Committee issued a press release cursing Democrats for supporting a federal spending bill in which it calls “New York City”. Tax breaks for wealthy homeowners in New Jersey. , and California.”
The Senate is expected to consider the Build Back Better Act after returning from the Thanksgiving holiday next week. Senate Majority Leader Chuck Schumer, D.N.Y., has said he expects the bill to be passed by Christmas.