FILE – A sign is displayed outside the Internal Revenue Service building on May 4, 2021, in Washington. Conservative politicians and candidates are distorting how a major economic bill passed over the weekend by the Senate would reform the IRS and affect taxes for the middle class. The Inflation Reduction Act, which awaits a House vote after passing in the Senate on Sunday, would increase the ranks of the IRS — but it wouldn’t create a mob of armed auditors looking to harass middle class taxpayers, as some Republicans are claiming. (AP Photo/Patrick Semansky, File) Patrick Semansky/AP
No special tax breaks for wealthy blue state Republicans
Washington Examiner July 19, 12:01 AM July 19, 12:02 AM Video Embed
Republicans need to find more ways to be competitive in blue state swing districts, but handouts to wealthy homeowners through the tax code are not the answer.
It is more than a month since the House Ways and Means Committee passed the Tax Cuts for Working Families Act, a key component of the agenda that Speaker Kevin McCarthy (R-CA) wants to complete before the August congressional recess. But the legislation still has not been scheduled for a floor vote.
BIDEN’S DEFICITS THREATEN ECONOMIC DOOM
The holdup appears to be an effort by blue state Republicans to raise or eliminate the cap on state and local tax deductions that first passed as part of the 2017 Tax Cuts and Jobs Act. These Republicans, mostly from California, New Jersey, and New York, have seen what the Freedom Caucus has accomplished with narrow margins and hope they can work similar magic.
“We’ve seen some great things happen and some other crazy things happen when just a few people band together and insist on an important issue,” Rep. Nick LaLota (R-NY) told reporters. “Leadership understands there’s a number of us who need that to be in any sort of tax package.”
McCarthy should resist this demand.
Not only would the elimination of the SALT deduction come at a hefty price of about $90 billion per year, but unlike other tax breaks it would go mostly to the wealthy without any economic benefit to other taxpayers.
The typical SALT beneficiary makes more than $500,000 a year and owns a $1 million home. According to the Brookings Institution, 96% of benefits from repealing the deduction would go to the top 1% of earners. If this spurred new home construction or made homes more affordable, it might be considered worthwhile. But the opposite is true: Tax breaks for expensive homes make houses more expensive.
These federal tax incentives may also make it easier for blue states to raise property taxes and spend more money. With a SALT deduction, high-spending blue states and counties can tell voters they’ll get some of their high taxes back from Uncle Sam through the SALT deduction. SALT forces low-spending red states to subsidize blue state overspending.
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Republicans lost the wealthiest voters in the wealthiest House districts decades ago. The GOP is a working-class party now. But to form a governing coalition, Republicans need to make inroads among wealthy suburbanites. It is understandable that Republicans representing these districts want to woo constituents.
But there are better ways to reach these voters. Giving parents more control over their children’s education is one way, and higher education reform to make schools more accountable is another. So is creating a sensible regulatory environment to lower energy costs, lower construction costs, and spur higher economic growth. Republicans can win back the suburbs, but they shouldn’t do it with upper-class bribery.
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