For the first five years, the single most expensive item in the House version of the Democrats’ “Build Back Better,” or “human” infrastructure bill is a gigantic tax cut for millionaires and billionaires. This provision would lift the cap from $10,000 to $80,000 on income tax deductions for state and local taxes (commonly referred to among budget nerds as “SALT”).
Given how inconvenient this is for a party that for years has been campaigning against millionaires and billionaires, some Democrats prefer the claim that it’s merely the second-most-costly provision. They do this by merging the childcare and pre-K programs into a single item.
But no matter how you slice it, giving a huge tax cut to the super-rich is a weird thing to do when you’ve been claiming that the solution to our problems is simply getting the rich to “pay their fair share.” It’s even weirder when you consider that this tax break would be even bigger and more regressive than former President Trump’s tax “giveaway” that was so reviled by progressives — which the House version would keep.
Benefits from the Democrats’ regressive giveaway would largely go to taxpayers in the top 20% of the income scale and would overwhelmingly benefit the top 0.1% of earners, specifically in high-tax states like New York, New Jersey, Illinois, and California.
Obviously, this is all justly ripe for accusations of hypocrisy. But what explains the hypocrisy? I can see three mutually reinforcing reasons.
First, and most obvious, House Speaker Nancy Pelosi (D-CA) needed every vote she could get to pass this thing in the House, since no Republican would vote for it, and Democrats from high-tax states insisted on restoring the SALT deduction greatly reduced by Republicans under Trump.
Second, for all their soak-the-rich rhetoric, Democrats rely on wealthy donors, too. In 2020, 24 of the top 50 individual donors gave to Democrats. Liberal billionaires are a thing, too. As in 2008, Wall Street money went disproportionately to Biden and other Democrats in 2020.
The rule of thumb is that culture-war issues help Republicans with voters and help Democrats with donors. But sometimes, wealthy liberals want their financial interests protected, too.
But I think the biggest reason for the SALT giveaway has less to do with Democrats carrying water for the 1% and more to do with protecting what Walter Russell Mead has dubbed the “blue social model” of politics.
The Democratic Party is heavily — and increasingly — dependent on college-educated, urban (often white) voters clustered in big cities and very wealthy suburbs.
These high-tax states and localities need rich people to pay for everything from generous benefits to public-sector unions, unfunded pensions, and bloated bureaucracies. The SALT deduction reduces the incentives for the wealthy to vote with their feet.
But it doesn’t eliminate them, which is why so many people are fleeing high-tax states like California and New York for low-tax ones like Florida, and Texas. Of course, they’re not all tax fugitives; some are leaving because of issues like affordability and business regulation, which are also problems for blue-model jurisdictions.
On another level, the SALT deduction also helps mask and subsidize bad state and local taxation and spending decisions.
Indeed, much of Build Back Better is made to appeal to the blue-model coalition. A massive tax credit for electric cars can be rationalized in the context of climate change, but it also serves blue-state voters, who own the lion’s share of electric vehicles.
Likewise, the child-care provisions in the bill could disqualify many religious institutions from receiving federal subsidies because of federal nondiscrimination statutes — despite the fact that more than half (53%) of families that rely on such services do so through religiously affiliated institutions. This reflects another example of favoring Democratic interest groups.
At this point, it’s unclear if the SALT provision in the House version will survive in the Senate. Sen. Bernie Sanders of Vermont — unlike his progressive counterparts in the House — remains opposed, because he rightly sees it as a gift to the millionaires and billionaires he excoriates. He’s working with Sen. Robert Menendez (D) of New Jersey on a less regressive version of the SALT provision.
But tinkering can’t hide the fact that the Democrats’ agenda is as much about investing in their own party’s infrastructure as it is about investing in the country’s.