As the White House and House and Senate leaders continue trying to decide how to distribute more deficit spending on items tagged “coronavirus,” Democrats have come under fire for pushing a $137 billion tax break for the wealthy. The proposal, which was also part of a 1,800-page bill the Democrat-led House passed in May, would remove the current $10,000 limit on state and local tax deductions from federal taxes through 2021.
The richest Americans use this tax break, which effectively subsidizes high-tax states by lowering their fiscal burdens to high-income taxpayers. The Tax Policy Center, an affiliate of the Brookings Institution, estimated the proposal would give an average tax cut of $33,000 to the top 1 percent of income earners. Over half of the benefits of the proposal would go to that top 1 percent.
The tax break was spearheaded by Democrat Rep. Tom Suozzi of New York, who insists it’s necessary to keep wealthy New Yorkers from fleeing his state over it fleecing of them for huge social welfare programs.
The current deduction cap means that any further tax increase from a state government such as New York comes directly out of taxpayers’ pockets rather than being effectively cushioned by federal taxpayers from other states such as Wyoming and Idaho, and could likely tempt residents to leave the state for ones that manage their finances better. In contrast, if Democrats like Suozzi get the deduction cap removed, wealthy taxpayers would pay more in state and local taxes but less in federal income tax.
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Senate Majority Leader Mitch McConnell has criticized the hypocrisy of Suozzi’s plan, which has also been pushed by Senate Minority Leader Chuck Schumer, another New York Democrat. Schumer, McConnell said on Monday, “is still refusing to let struggling Americans get another dime unless he gets a massive tax cut for wealthy people in blue states that has nothing to do with the coronavirus.”
The Tax Cuts and Jobs Act, spearheaded by congressional Republicans and the Trump administration, originally enacted the $10,000 tax deduction cap in 2017. Democrats have been trying to eliminate it ever since, at the behest of well-heeled top donors.