EDITORIAL: Expanding SALT tax loophole appears to be dead

Democrats tried repeatedly to secure a large tax break for the wealthy, but it appears their efforts won’t be successful.

Late last month, The Hill reported that Senate Democrats scrapped their push to expand the state and local tax deduction — known as the SALT write-off — from a revised version of the Build Back Better Act. Senate Democrats still believed they could get West Virginia Sen. Joe Manchin on board for another massive round of spending if they pared the cost of the bill. Once again, however, they misread their colleague. On Tuesday, Mr. Manchin told CNN that the Build Back Better bill is “dead.”

That should spell the end for the SALT deduction, a benefit for high earners in high-tax states. Prior to the Republican tax reform of 2017, tax filers could deduct all of their state and local taxes on their federal returns. But the Tax Cuts and Jobs Act limited that deduction to $10,000.

That was bad news for top earners in blue states such as California and New York. Paying a state income tax of 10 percent or more hurts. Being able to deduct that payment from one’s federal taxes took away some of the sting, especially for those whose marginal tax rate is 35 percent or more.

Democrats in high-tax states worried that, without the deduction, taxpayers might begin to demand lower levies or even relocate to red states. The obvious solution would be for states to back off punitive tax rates, but Democrats instead frantically pushed to restore this tax loophole for the wealthy.

That’s funny, given how Democrats constantly claim they want the rich to pay their “fair share.” Yet they were more than happy to offer this particular tax break to the well-off because it helped subsidize the costs of fiscal profligacy in progressive states.

The left-leaning Brookings Institute found that the top 20 percent of earners would receive 96 percent of benefits of lifting the cap on SALT deductions. The much-maligned top 1 percent would receive 57 percent of the benefits.

Even top Democrats, including Senate Majority Leader Chuck Schumer and Speaker Nancy Pelosi, supported restoring SALT. It turns out their class warfare rhetoric is more about politics than principle. Who knew?

Sen. Schumer once attacked Mr. Trump’s tax plan as “regressive.” He claimed it was “a tax break for millionaires and billionaires, paid for by pilfering the pockets and the health care of middle-class Americans.” He might as well have been talking about his own SALT plan.

Sen. Schumer and Democrats may not have succeeded in their quest to give the rich a nice tax break. But they did show the country their enormous hypocrisy.