Democratic presidential candidate Pete Buttigieg took on one of the most fraught tax issues in Democratic politics, proposing that the $10,000 cap on state and local tax deductions be lifted.
Buttigieg updated his tax plan Monday, adding a plank that would remove the $10,000 limit on so-called SALT deductions for those earning up to $400,000, partially reversing a provision in President Donald Trump’s tax law that capped those write-offs, which were previously unlimited.
The proposal is likely to play well in high-tax states such as California, New York and New Jersey, Democratic strongholds where local leaders have said the cap hurts residents whose incomes and property values tend to be higher. Democrats say the cap had a political motivation because it overwhelmingly affects Democratic-dominated states.
But the plan could also open the candidate to criticism from some progressives who say most of the benefit of lifting the SALT cap would flow to top earners and homeowners, at a time when the party is focused on income inequality and large, new tax increases on the wealthy.
Buttigieg’s $7.2 trillion tax plan could protect him from some of those critiques. Only those earning less than $400,000 would be able to write off all of their SALT liability. The proposal also includes several tax benefits for lower-income people, including expanding the child tax credit to $2,000 a year and increasing the average earned income tax credit by $1,000 a year per household.
Corporations, investors and banks would also pay more. Buttigieg is calling to roll back the Trump tax cuts for the wealthy and for corporations. The effective tax rate for millionaires would increase to 49 percent from 31 percent, though the plan doesn’t specify how it reached those figures. He also calls for a 0.1 percent financial transaction tax on stock and bond trades and for raising taxes on corporations that shift jobs and profits overseas.
“Trump placed a politically motivated cap on SALT. Trump’s economic adviser gloated that it would deliver ‘death to Democrats’ by hurting families in Democratic-leaning states with high costs of living and more progressive tax policies and social services,” Buttigieg’s plan says. “Removing the SALT cap for families undoes Trump’s politically motivated tax increase and enables governors and mayors across the country to enact progressive tax policies.”
Republicans have said the change makes the tax code more progressive and that if Democratic states are worried that their residents pay too much in taxes, they should pass state and local legislation to lower those levies.
Buttigieg’s SALT proposal would likely result in only a small percentage of households being able to write-off more from their tax bills. Only about 10 percent of taxpayers itemize — including many earning more than $400,000 — meaning that about 90 percent of people take the standard deduction, which makes them ineligible to claim the SALT deduction. And, in many states with low or no state income taxes, many people don’t have more than $10,000 to deduct even if they are itemizing.
The Democratic-controlled House in December passed legislation that would temporarily repeal the SALT cap in exchange for raising the top tax rate. The passage was a symbolic victory, particularly for some moderate Democrats representing suburban districts in southern California and New Jersey, who had flipped seats in the 2018 midterms after voters were angry the tax law limited their tax breaks. Republican Senate leaders have said they won’t address the bill.
The Senate in October also rejected a resolution that would give states leeway to help residents avoid the $10,000 limit on SALT payments. Senator Amy Klobuchar, one of Buttigieg’s moderate rivals in the race, voted for the resolution. Senators Bernie Sanders and Elizabeth Warren were not present for the vote. Former Vice-President Joe Biden has said he favors removing the cap.
(Disclaimer: Michael Bloomberg is seeking the Democratic presidential nomination. He is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)
— With assistance from Tyler Pager