- Repealing a cap on the state and local taxes deduction would be “a giveaway to the rich,” Rep. Alexandria Ocasio-Cortez said Thursday.
- The Trump tax cut of 2017 slashed the SALT deduction to $10,000 from an unlimited amount.
- Some Democrats want to get rid of the cap, as itemized deductions can be very high in blue states like New York and California.
- See more stories on Insider’s business page.
Rep. Alexandria Ocasio-Cortez, the democratic socialist known as “AOC,” is breaking with members of her party who want to undo a major part of Trump’s 2017 tax cut, accusing them of favoring an unequivocal “giveaway to the rich.”
That would be the federal cap on the state and local tax (SALT) deduction, which some Democrats in high-income-tax states have been working to roll back for four years now.
House Speaker Nancy Pelosi, for example, calls the cap on the SALT deduction “mean-spirited” and “politically targeted,” arguing that former President Donald Trump’s White House designed this policy to hurt the wealthy in blue states, in particular. Others even want to hold up one of President Joe Biden’s top legislative priorities if they don’t get their way. That would be the $2.3 trillion infrastructure plan Biden unveiled this month, the first of a two-part package, which he would like to fund with tax revenue rather than deficit-finance.
“I don’t think we should be holding the infrastructure package hostage for a 100% repeal of SALT,” Ocasio-Cortez told Huff Post’s Igor Bobic, according to a pool report. “I think we can have a conversation about the policy, but it’s a bit of an extreme position, to be frank.”
The politics of SALT can be a bit confusing. In 2017, Republicans capped the SALT deduction at $10,000, a progressive reform in an otherwise regressive bill.
But this particular giveaway – enabling taxpayers who itemize their returns to lower their bill to the IRS – has an unusually high number of liberal fans who argue that it only penalizes the better-off in parts of the country that have solidly Democratic governments (and their generally higher tax rates).
The argument has flared up again as Congress debates Biden’s $2.3 trillion infrastructure plan – and how to pay for it. So far, the White House has proposed partially rolling back another aspect of the 2017 tax cut, which slashed corporate tax rates from 35% to 21%; he wants to raise it back to 28%.
But some in the president’s party are threatening to oppose any legislation that does not also reduce some of the federal government’s ability to collect taxes from those who claim the now-restricted SALT deduction.
“No SALT, no deal,” Rep. Thomas Suozzi, another New York Democrat, told The Hill.
Ocasio-Cortez, however, argued that it would not be “just” to simply abolish the cap.
“I think it’s just a giveaway to the rich,” she said, “and I think it’s a gift to billionaires.”
Experts more or less agree. In a 2019 piece for Insider, Scott Eastman, federal research manager at the Tax Foundation, wrote that repealing the cap would “almost exclusively benefit wealthy taxpayers, making the tax code less progressive” – and depriving the federal government of money it will need to fund Democrats’ agenda.
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