The Senate Gets SALT-y
A tax cut in the Build Back Better Act that benefits mostly blue state voters might not fly in the upper chamber.
Everybody now knows that all politics aren’t local anymore. But that doesn't mean that no politics are local.
Elections for every office down to dog catcher may be slavishly focused on national partisanship, but that doesn't mean the rules of regional political self-interest have been repealed entirely.
The misunderstanding of this truth has been especially obvious in the matter of progressive Democrats’ multi-trillion-dollar social welfare package, Build Back Better, and the chances that it, or something close to it, will pass the Senate. The grab bag of social and environmental spending eked its way out of the House thanks in large part to the inclusion of more generous federal deductions for state and local tax payments. This is a big deal in high-income, high-tax places like the suburbs of the Northeast and Southern California. These places are mostly represented by Democrats who have listened to their constituents howling since the 2017 Trump tax cut chopped down that very valuable, mostly blue-state write-off.
That’s why the bill passed by the House would lift the deduction from $10,000 to $80,000. The bill overall is bad politics in most swing districts—too much spending, too many controversial ideas, and tax increases on top earners. But in swing districts of many blue states, the tax break may be enough to compensate for the other problems. The five states with the highest tax burdens are: New York, Connecticut, Hawaii, Vermont, and Minnesota. None have voted Republican in a presidential election since 1988. But all have some rich voters and all but Vermont have competitive or potentially competitive districts.
In New York, which has an effective state and local tax rate of more than 14 percent, the political stakes are very high. If you live in Putnam County, N.Y., where the median household income of about $105,000 is a third higher than the national average, even the middle of the middle class takes a hit under current law. Sean Maloney is the congressman for Putnam’s district. He is a moderate Democrat who leads the party’s House campaign arm and probably sees lots to be desired, both practically and politically, in the shoddily constructed, budget-busting provisions of the Build Back Better bill. But he sure wasn’t going to vote against what would add up to a tax cut of more than $5,000 for his middle-income constituents. Congressmen who vote against giving back five grand to their constituents don’t tend to remain congressmen very long.
Rep. Maloney and those like him feel an urgent need to save their constituents boatloads of money before the next election. These suburban moderates need something to hold on to in what is shaping up to be some very stormy midterm weather. They know they're going to be blamed for every excess of the House progressives, but maybe if they can prove they can deliver on parochial concerns, some members of the mod squad can survive 2022. The inclusion of the tax cut displeased many on the far left who see higher tax burdens on top earners as a form of retributive justice as much as a source of revenue. But its inclusion was the only way to get the moderates, as represented by the bipartisan Problem Solvers Caucus, on board to pass the legislation in a narrowly divided House.
None of that, of course, matters to Senate Democrats. Not that they want harm to come to their House counterparts—most of them at least—it's just that senators don't usually think about the House at all. And in the Senate, these tax cuts aren't really part of the discussion. And when they are, it's not in a good way.
Senate Budget Committee Chairman Bernie Sanders hates the tax break—known as SALT (state and local taxes) in the Congress-ese—and wants to limit the exemption to those making less than $400,000. He's not quite threatening to scuttle the whole deal without it, but he’s certainly gunning for it. It may also partly be a bid for leverage to try to get the total spending number up. But leverage with whom?
Unlike the House where the holdouts were from affluent battleground districts in mostly blue states, the Senate breaks on different lines. The toughest votes to get are senators from low-tax red or swing states. Joe Manchin’s West Virginia has the 26th highest effective tax rate. Kyrsten Sinema’s Arizona ranks 45th. Not only do their constituents not need the tax break as much as those of Maloney & Co., their voters probably don't like the idea of restoring tax breaks for the swells in places like Putnam County, N.Y.
Manchin, the face man for the Senate Democratic moderates, isn't talking much about state and local taxes. He is talking a lot about inflation, debt, and fiscal irresponsibility. Indeed, dropping the SALT relief might be an inducement to Senate moderates, the opposite of the House. Inflation is brutally regressive and is hitting poor states like West Virginia, where residents spend higher-than-average portions of their incomes on necessities like gas and groceries. Limiting government spending is one way to try to curb inflation. But so are higher taxes. And keeping the $300 billion in revenue the House version gives back on the SALT exemption would also bolster Manchin’s standing as a budget hawk.
Some Democrats who represent rich states with high taxes would like to keep the House SALT exemption intact—or at least to set Sanders’ cap higher. But none have seemed willing to be seen risking the survival of the bill on a provision only grudgingly accepted as the price of passage by the activist left. Senate Majority Leader Chuck Schumer does not want to start his re-election year by sticking his thumb in Alexandria Ocasio-Cortez’s eye.
It's easy to imagine the Senate sending to the House a version of the plan that is worse in the eyes of both progressive and moderate members of the House: Less spending and social engineering but also no goodies for blue state moderates. It's similarly easy to imagine a scenario where the Senate walks away from the bill entirely after reaching an impasse.
Tip O’Neill be praised. Some politics are still local after all.