By IPI President Tom Giovanetti
Over the last several elections, Democrats have become the party of the wealthy and the upper middle class, while Republicans have become more of a blue-collar party.
For decades Democrats have criticized Republicans of being the “party of the rich” and as always looking to serve their rich masters through tax cuts and other devices.
And indeed, Republicans have been inveterate tax cutters, cutting taxes for everyone, including upper income folks. Plus, Republicans generally believe in encouraging savings and investment as a means of driving economic growth, so they have favored lower taxes to encourage additional saving and investment, which of course apply to those who . . . save and invest.
But a funny thing happened on the way to the November Election. Democrats have become the party of the wealthy and the upper middle class over the last several elections, while Republicans have become more of a blue-collar party.
And that change in reality was reflected in the Republicans’ 2017 major tax reform, which emphasized tax cuts for lower and middle income workers, while cutting back on tax benefits that favored high income and wealthy individuals.
One of the changes was that a $10,000 cap was placed on the deductibility of state and local taxes (SALT). That means the most a family can deduct from their taxes from property taxes, state income or sales taxes is $10,000.
And guess who pays a lot more than $10,000 in property taxes and state income taxes? Upper income earners, especially in blue states.
Elsewhere we’ve discussed in detail the legitimate rationale for the cap on state and local taxes. But for our purposes here, when President-Elect Joe Biden promises to eliminate the SALT deduction cap, he is promising a tax cut for the wealthy and a tax subsidy to blue states with high income taxes.
Now it takes political rhetoric a while to catch up to changes in fact, so I expect we’ll keep hearing Democrats complain about the 2017 tax cut as a tax cut for the rich (it wasn’t) and promise to right that horrific wrong.
But the fact is that we can expect Democrat policies, including eliminating the SALT cap, to increasingly reflect the fact that the wealthy is increasingly THEIR constituency.
So who’s promising a tax cut for the wealthy? Joe Biden.
Today's TaxByte was written by IPI President Tom Giovanetti.