As House Democrats rushed to finalize their latest trillion-dollar spending plan, the nonpartisan Joint Committee on Taxation (JCT) on Thursday released its review of the tax-related provisions in that plan. Their review reveals that a newly-added policy the New York Times calls a “tax deduction that benefits the rich” results in twice as much tax relief as another policy Democrats have for months touted as providing “historic” tax cuts for working families.
The tax cuts for the rich result from the last-minute addition of a dramatic increase in the SALT cap. When JCT prepared its estimate, the cap would have increased from $10,000 to $72,500, which continued to be bid up to $80,000 as the legislation was finalized. JCT expected the increase to $72,500 would provide over $50 billion in tax relief in each of the next four years.
The subsequent increase in the cap from $72,500 to $80,000 further advantages the highest-income households. Former Chairman of the Council of Economic Advisers Jason Furman notes that “this increase alone will go almost exclusively to households making over $1 million.” That is consistent with what groups across the ideological spectrum have suggested in recent months — that raising the SALT cap disproportionately benefits those with the highest incomes. For example, the left-leaning Tax Policy Center found that the $72,500 cap would offer middle-income households an average tax cut of $20, while those in the top 0.1 percent (who make more than $4 million per year) “would get an average tax cut of about $16,000.”
Meanwhile, what Democrats regularly call “major tax relief for working families” through a “historic expansion of the Child Tax Credit” results in just a fraction of those tax cuts.
It is important to understand that, despite its “tax credit” moniker, the current massive expansion of the child tax credit is really mostly a benefit increase for families who don’t owe federal income taxes — and far less of a tax cut for those who do. For example, the prior $3.5 trillion version of this mammoth spending plan would have extended the expanded child tax credit for four years, at a cost of over $556 billion; over 75 percent of that cost reflected benefit increases, with the remainder for tax relief. Thursday’s JCT review of the one-year extension included in the latest version of this trillion-dollar spending bill reveals the same dynamic. As the table below displays, almost 78 percent of the first-year cost of that policy is for benefit increases, while only 22 percent (or less than $23 billion) reflects actual tax relief.
As the table also
displays, the $50.6 billion in first-year tax relief for the rich resulting
from the SALT cap increase to $72,500 is over double the $22.7 billion in expected
tax relief for working families from extending the expanded child tax credit
for a year. Over five years (and thus assuming the expanded child tax credit is
not extended beyond 2022), the ratio of tax relief for the rich compared with for
those Democrats call “working families” is even greater — over 7 to 1.
As the administration often notes, there are other tax hikes included in the legislation that target higher-income individuals. But it is remarkable that the tax relief resulting from this last-minute SALT cap increase for the rich significantly eclipses the “historic” tax cuts — properly understood — for working families that the administration has touted for months. This late addition also blatantly flouts what Nancy Pelosi said in 2017: “The American people want tax reform for hard-working middle-class families, and not one penny more in deficit-exploding tax breaks for the wealthiest one percent.”
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