Pelosi Wants SALT Cap Repeal in Next Stimulus

Progressive policy and constituent interests collide.

In this crazy, mixed-up world in which we live in, the Democratic Speaker of the House wants tax cut that would primarily benefit the rich and is being opposed by President Trump and Congressional Republicans.

NYT (“Pelosi Floats New Stimulus Plan: Rolling Back SALT Cap“):

As lawmakers prepare for another round of fiscal stimulus to address economic fallout from the coronavirus pandemic, Speaker Nancy Pelosi suggested the next package include a retroactive rollback of a tax change that hurt high earners in states like New York and California.

A full rollback of the limit on the state and local tax deduction, or SALT, would provide a quick cash infusion in the form of increased tax rebates to an estimated 13 million American households — nearly all of which earn at least $100,000 a year.

In an interview with The New York Times, Ms. Pelosi said the next phase of an economic rescue package should include additional measures to get more money directly to individuals — like the $1,200 direct payments for low- and middle-income taxpayers that were authorized in the $2 trillion bill that President Trump signed on Friday.

That could be achieved, she said, by having Congress “retroactively undo SALT,” a reference to a cap on the state and local tax deduction that Republicans included in their 2017 tax overhaul. That limit prevents households from deducting more than $10,000 a year in state and local tax expenses from their federal tax bills.

Henry Connelly, a spokesman for Ms. Pelosi, said on Monday evening that she was proposing something narrower than a full SALT rollback, and that any change would be “tailored to focus on middle-class earners and include limitations on the higher end.”

“We could reverse that for 2018 and 2019 so that people could refile their taxes” and receive more money back from the government, Ms. Pelosi said in the interview. “They’d have more disposable income, which is the lifeblood of our economy, a consumer economy that we are.”

[…]

Republicans called the effort hypocritical, saying that it would primarily benefit wealthy households in high-tax states. Democrats had roundly denounced the 2017 law, which included rate cuts for businesses and individuals, as a handout to the rich. But the SALT deduction overwhelmingly benefits high earners.

[…]

The congressional Joint Committee on Taxation estimated last year that a full repeal of the SALT limit for 2019 alone would reduce federal revenues by about $77 billion. Americans earning $1 million a year or more would collectively reap $40 billion of those benefits. Most of the rest would go to households earning $200,000 or more.

The politics of this are amusing, in that most of the high-tax states and localities are Democratic-leaning. Republicans see the cap as a win-win: it doesn’t impact their constituents and it sticks it to the libs, who are always whining about Republican tax cuts for the rich. And, while she’s rightly getting pushback from her delegation, Pelosi does, after all, represent San Francisco in Congress.

While I’m now at the low end of the JCT’s threshold thanks to getting remarried last summer, I’d certainly benefit from the repeal. Our annual property taxes alone exceed $10,000.

As to the merits of the repeal itself, I can preach it either way. On the one hand, it’s unreasonable for lower earners in lower-tax states to subsidize me, let alone rich property owners in Manhattan or Hollywood. On the other, the tax implications were factored in when we bought our homes and, at the very least, the cap should have been phased in.

But it’s absurd to argue that this would be a stimulus. I can scarcely think of a less efficient way to pump money into the economy than to require millions of people to refile their 2017 and 2018 taxes. The only stimulus there would be for accountants and other tax preparers.

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FILED UNDER: Economics and Business
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Michael Reynolds says:

    I think the whole notion of a stimulus is misplaced. I have plenty of cash. I can’t buy milk. Give me more money and guess what? I still won’t be able to buy milk.

    I also can’t buy gas, or a car, or a new house, or take a trip, or go to the Comedy Store, or get the dog groomed, or have work done on the property. How the hell do you stimulate an economy when people can’t go anywhere or buy anything?

    This is not a stimulus, it’s a bail-out, it’s a stupidly designed, on-the-fly social safety net and wasteful, pointless and almost certainly futile effort to prop up the stock market so orange Jesus can convince his culties he’s God.

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  2. Jay L Gischer says:

    I think I get why the Speaker is talking about this, but it’s a bit complex.

    In 2018, a bunch of districts in CA that have been red for a long time flipped to blue. I believe one reason for that is that these districts contain a lot of people who might put up with other Republican antics for the sake of lower taxes. The national Republicans screwed them over with the SALT cap. So they stayed home or voted blue, and Nancy Pelosi became Speaker again.

    Pelosi wants to hammer on that fissure, remind them of who screwed them over, and who their friend isn’t (namely Donald Trump).

    These demographics are strongest in CA and NY and MA, but they might also be in play in TX and FL. I don’t know for sure, but I’m sure the Speaker knows.

    As policy, I support the SALT cap. I am a Democrat, after all. I didn’t like the context of it at all, though. You raised my taxes so that corporations could get big tax cuts that didn’t actually translate to more jobs, just stock buybacks? No thanks.

    I see this as a political maneuver, and I’m fine with it as such. I see Biden positioned to take advantage of this as well, in a way that Bernie Sanders is not. I think the state of the primary is relevant to Pelosi’s bringing this up.

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  3. Modulo Myself says:

    Anyone who makes around 150K in NYC or SF is probably sweating their financial feature, but they’re doing it most likely from the comfort of their home (or their place upstate) and how much spending can anybody do to stimulate the economy via having stuff delivered to your door by Amazon?

    I keep on reading we should be thinking about sending people back to work to restart our economy. Presumably this means these are not essential workers. But what are they going to be doing to get the economy going? Sit around in empty stores and prep kitchens at restaurants? Work in factories or build new homes? It’s a joke. Unless Trump thinks he can order people to go out and march for victory by returning to life as it was in February, there’s very little that can be done to get the economy going again.

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  4. If we are going to pump money into the economy, send checks and more checks so that people affected by the coming wave of unemploymeny can pay their bills.

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  5. Tyrell says:

    These sort of “stimulus bills” always tend to have more pork than Fat Bubbas Barbecue! Will there be another opera house in the next one or a study of squirrels?
    I see where Macy’s is having problems and will be laying off over 100,000 workers. I think that something could be sent to that store to keep them in business when things get back to normal: a loan perhaps. We can’t afford to keep losing retailers. And Macy’s is an icon.
    Yesterday, I went to two grocery stores (hunting for bread and hot dogs), a car parts store, Walmart (pharmacy and fire ant stuff), McDonald’s (drive through for coffee), and a convenience store. I try to stay local, but when the local store is out of stuff, I head to the other town. I had to get a turn signal lamp so the car would pass inspection. Tomorrow I will run to the nearest car shop that does inspections, and get some coffee at QT while I am out.
    50 degrees today, 94 is forecast for Friday. Typical April.

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  6. Sleeping Dog says:

    @Jay L Gischer:

    When I saw this yesterday, I rolled my eyes. @Jay, if you are correct, then IMHO, Nancy is being too cute by half. She maybe doing this for some Cali benefit, but it a non-issue in most congressional districts, even those controlled by Dems.

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  7. DrDaveT says:

    @Steven L. Taylor:

    If we are going to pump money into the economy, send checks and more checks so that people affected by the coming wave of unemployment can pay their bills.

    Roger the second half of that, but the point (as Michael notes above) is not “to pump money into the economy”. The parts of the economy that you could effectively prime don’t need it, because they are the ones still functioning at near-normal levels. For the rest, there’s nothing that can be done until people can go back to work, which means the only things we should be trying to accomplish right now are stamping out the pandemic and keeping the idled workforce fed and housed in the meantime. Neither of those things is “stimulus”.

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  8. senyordave says:

    @Tyrell: So when the US auto manufacturers were in danger of going out of business, jeopardizing millions of jobs (auto labor and supply chain), Republicans opposed the auto bailout, but we should loan money to a retailer that can’t compete? If they go under, they go under. Retailers like Macy’s were dying, and this will just accelerate the decline.

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  9. @DrDaveT: I concur that the goal is not stimulus. I just don’t see any other efficient way to do what is needed beyond simply sending checks. And then sending more.

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  10. Tyrell says:

    @senyordave: I see it. It bothers me that we have less and less retailers to choose from. Sears, J. C. Penny, Aeropostale, GAP, Hollister (my favorite), and Sports Authority. If that keeps up, our choices will be Kohls, Sams, Dicks, Walmart, and Academy Sports.
    There is a nice outlet mall not far. Maybe that’s the trend.

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  11. Teve says:

    Whoever is writing Tyrell is going for a Ken M award. 😀

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  12. DrDaveT says:

    @Steven L. Taylor:

    I just don’t see any other efficient way to do what is needed beyond simply sending checks. And then sending more.

    We are in complete agreement on this. It’s just the labeling that annoys me. Calling it “stimulus” is no more accurate than calling it “tax refunds” or “dividends”.

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  13. Jay L Gischer says:

    @Sleeping Dog: I mean, yeah, it’s a non-issue in most districts. How many districts would it take to make it worthwhile? 20? Out of 435? 30?

    Bear in mind, I think it’s a proposal that’s going absolutely nowhere except into politics. She is threatening her counterparties with a wedge issue, one that many of their supporters really didn’t like.

    And we have a track record that shows these guys don’t do “bipartisan” except at the point of a gun.

    (Weirdly, they do actually do things that are bipartisan, but only on stuff where they think nobody is looking.)

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  14. Raoul says:

    As a commentator said above, this a complex issue but the bottom line revolves around fairness. I for one are not privy to the details and also I’m skeptical of its economic impact. If anything we should have one time tax among people who earn 10 mill a year to help pay for things. After all, their money is macroeconomically useless now.

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  15. Jay L Gischer says:

    @Tyrell: In some sense you’re right. It’s inevitable that some big spending bill will have some stupid spending in it. Let’s ignore the part where you might think some spending is dumb but I don’t.

    If they hand out a trillion dollars, and even 0.1% of it is kind of misspent, that’s a very small fraction. It’s one buck in a thousand. And yet because of this scale, it’s 100 million dollars, and that’s a lot of bread. So of course, people will complain about a million for study of some strange critter, and so on. But it’s pretty meaningless in terms of the load on each of our taxes. It’s not even a single penny a year to either of us, in all likelihood.

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  16. Monala says:

    @Michael Reynolds: People still need to pay their rent or mortgage, utilities, phone service, and buy food.

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  17. Teve says:

    @Jay L Gischer: volcano monitoring???

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  18. gVOR08 says:

    Pelosi is either wanting to take the opportunity to claw something back from the GOPs or she put it in as a sacrificial lamb to be traded away for something else. Either is fine with me. If it’s the former, might not have been my first priority, but I’ll take any win we can get.

    Congressional politics used to be about horse trading. You can have the leather bucket seats for the next bomber if we get a few bucks more for SNAP. But that ended because the Koch Bro et al are content with stasis. The don’t want anything but tax cuts, which they got, and regulatory relief which is mostly administrative. Well, now they want something. Make them pay for it.

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  19. Michael Reynolds says:

    @Monala:
    Yes, obviously. And we should continue to make that happen until the economy recovers. But more to the point we should have a social safety net – like every other developed nation – so that a loss of employment does not cascade into a loss of health insurance and homelessness. I’m interested in the Yang UBI proposal. That feels like the quickest, least bureaucratic, least manipulable way to approach it.

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  20. Monala says:

    @Michael Reynolds: I absolutely agree.

    Btw, the IRS is calling these “economic impact payments,” not stimulus checks.

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  21. Sleeping Dog says:

    @Jay L Gischer:
    And in dozens of districts having to explain this if not defend it is a burden that isn’t needed. The haute bourgeoisie that this purports to assist, really doesn’t have anyplace to go. After all the rethugs took that deduction away from them.

  22. Just nutha ignint cracker says:

    @DrDaveT: Calling it “giving money to po’ folk so they won’t have to live under a bridge” will never pass Congress. Moreover those people shoulda thought more carefully before they decided to be po’ folk in the first place. Let those with the resources get the advantages they can have an leave the others behind. It’s the American way!

  23. Just nutha ignint cracker says:

    @Teve: Clearly, you don’t live in the ash plume fallout zone of an active volcano whereas I do. I’ll thank you to keep your worthless libertarian/RWNJ opinions to yourself. 😉

  24. Just nutha ignint cracker says:

    @Michael Reynolds: I agree that UBI is probably a bad idea whose time has come and is certainly better than a poke in the eye with a sharp stick. The surly Marxist (and Adam Smithian economic moralist in me for that matter) still resents the idea that we need to use tax money to subsidize capital because the owners thereof decline to pay their workers wages that people can live on. Have we really sunk that far?

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  25. An Interested Party says:

    Have we really sunk that far?

    Surely that is a rhetorical question..with the immense political power that the rich in this country have gained, of course we have really sunk that far…

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  26. inhumans99 says:

    @Teve:

    Considering this little volcanic event in Hawaii a year or two back added a couple square miles of new land to an island, wiped out a large pond/body of water that had been around for an extremely long period of time, and I understand did a bit of property damage and destroying some cars along the way I would say a bit of Volcano monitoring is called for. That is the end of my thread digression.

    I agree with Just Nutha, we always cringed at the idea of paying people to do nothing because you know, capitalism, greatest country ever, lots of wealth sloshing around that was supposed to trickle down to workers (trickle down economics…heh) being paid a wage they can live on by the “job makers,” but um, yeah….we all have eyes and can clearly see how that has worked out. The income disparity between not just the very poor and very wealthy, but even the mid-upper middle class folks is staggering and just well…wrong.

    It is a sad commentary on politics in this country that Pelosi had to spend a lot of effort and political capital to throw the average working stiff who has lost their job a bone (i.e., the enhanced UI) but hey, at least she accomplished something positive.

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