State and local tax deduction cap repeal does not belong in reconciliation package: CRFB Director

Marc Goldwein, Senior Policy Director for the Committee for a Responsible Federal Budget, talks SALT deduction cap within the $3.5T budget reconciliation bill.

Video transcript

ZACK GUZMAN: Well, as the Biden administration continues its push for their $3.5 trillion spending bill, we are seeing the sausage get made on the tax side, the biggest set of US tax increases in what is a generation, people are calling it, as the House Ways and Means Committee pushed forward with $2.1 trillion in new taxes, focused on not just corporations, but also America's wealthiest.

A lot of questions about whether or not it's going to be enough to offset some of the costs, and for more on that, happy to welcome into the program, once again, Marc Goldwein, Senior Policy Director for the Committee for a Responsible Federal Budget joins us here.

And Marc, I mean, we've been talking about it, trying to watch and see what kind of increases are going to come, a lot of people pointing out it might not be as progressive as what even President Biden wanted initially. But what do you make of, I guess, this being enough to fund that $3.5 trillion.

MARC GOLDWEIN: Well, they're not quite there. Look, the Ways and Means Committee has put forward about $2.3 trillion of tax increases. They actually are quite progressive overall, mostly from the rich. They also plan to have some spending reductions from health care savings. We don't know how much, maybe $500 billion $400 billion when it's all said and done. That's not going to quite cover the $3.5 trillion, but it's at least a good start.

ZACK GUZMAN: I mean, when you say good start, are you expecting more to come here to kind of pay for the rest? Or I mean, these things are never really paid for fully, as you know better than I do. But I mean what are the expectations in terms of how wide that gap might be?

MARC GOLDWEIN: Well, look, I'm an optimist that they may add stuff as this goes to the Senate. But I think the more likely approach is they're going to reduce the amount that they're spending. We've heard from enough members that $3.5 trillion ain't happening. So if they can keep this $2.3 trillion of tax increases and get the spending down to $2.3 trillion, then we're set. Then we have a fully paid for bill.

ZACK GUZMAN: And how-- I mean, how does that kind of match up with expectations? When all these conversations were beginning, we've seen moderates in the Senate side, Joe Manchin being one, really talk about not wanting to increase spending that much. But the gap seemed wide when these discussions began, so to get here now and the timeline that we've seen, what do you make of that?

MARC GOLDWEIN: I mean, this is going to be a Herculean task. Look, they've basically made about $5 trillion worth of promises, things that they said they want to do. They're trying to fit it into $3.5 trillion, and then they're getting pressure to reduce that to maybe $1.5 trillion. So this is going to be a huge slog just on the spending side. And that's before we even get to the paid fors.

ZACK GUZMAN: There is another key thing that people have been watching, maybe not talked about a lot, which is the assault cap reversal here. It's something that's pretty important for people who fall in Democratic states with high taxes there.

And getting that changed, as you guys have been pointing out in your research, it seems that it would really only benefit the rich that don't take that minimum deduction there in taxes on that front. So talk to me about what you've seen play out and what we're expecting Democrats to do with that push.

MARC GOLDWEIN: That's right maybe the biggest hypocrisy of this whole thing is Democrats have spent the last four years complaining about regressive tax cuts, tax cuts for the rich, and now they want to push one of their own. Not all of them, but a number of Democrats are pushing that we lift that $10,000 cap on the state and local tax deduction.

Now, the issue here is most people are in the standard deduction. Everyone in the bottom 60%, nobody is getting SALT, and nobody will get SALT. Almost all of the benefit of this goes to the top 10%, mainly the top 1%. If you're the top 0.1% of Americans, you're going to get an average of $150,000 tax cut. If you're in the middle, $15. $15 versus $150,000, it is just mind blowing they're even talking about this kind of tax policy.

ZACK GUZMAN: Yeah, and it's maybe mind blowing that we haven't seen pushback on the Republican side yet. As we were kind of discussing, of course, maybe that's because they want to wait until it gets through to have something to attack. I don't know. But just your guys's research lays out exactly how much some of that revenue would be able to pay for, rather than going to those families getting the tax breaks if they kept them in place.

You'd be able to pay for quite a bit of what the progressive Democrats are pushing for, including free community college, universal pre-K, affordable child care. I mean, it sounds like a lot of money that would be leaving.

MARC GOLDWEIN: That's right. It's not one of those things, by the way. It's all of those things. You could pay for all of those things and EITC with the money for repealing SALT. In fact, every dollar they want to raise from increasing the individual and corporate rate would have to go to the SALT cap relief.

It really does not belong in this bill. It's not an investment. It's not support for the middle class. It's a handout for the rich, a lot of them in blue states, but it's actually the handout for the rich around the country.

ZACK GUZMAN: And in that push, I suppose, I mean the expectation there, from what we're hearing, sounds like it's going to make its way in, regardless. I'm not sure what the final bill is going to look like or how it's going to shake out here. Obviously, as we said, a lot of back and forth still to come, but I mean, it has been one that has been top of mind, I suppose, for key Democrats here. So the expectations there, in your mind, you see it getting included.

MARC GOLDWEIN: There are a few members, some very progressive, some very moderate, that have basically conditioned their vote on something on SALT. So I think it's likely that it's going to make it into at least the first draft of the bill that passes the House.

As they're sugaring stuff off, trying to get from that $3.5 trillion to $1.5 or $2.5 trillion, it's hard for me to understand why they would waste even $1, on again, this regressive tax cut for the rich, that's actually not tax reform, it's tax deform. It's narrowing the base and making the tax code more complicated.

ZACK GUZMAN: Yeah, we'll see what happens there, but I guess just kind of finally to recap and look back on everything, right, you guys have done a great job of tracking the money that had been raised during COVID and really put to work here to help American families struggling. It was a lot of money. We've heard a lot of people talking about it being too much money relative to the debt load here in the country.

I mean, when you kind of step back and look at the way things are shaping up, as your guys's group kind of does here to try and make it responsible, how would you maybe grade where we're at in terms of trying to navigate and balance kind of what's going out and what's coming in?

MARC GOLDWEIN: Well, look, we passed about $6 trillion worth of COVID relief. I think probably about $4.5 to $5 trillion of that was very much warranted. So we overdid it. But a lot of that was really important, and it's helped support the recovery and protect incomes.

But now we've got debt as large as the economy headed to record levels. It's time to start paying for what we do and ultimately to get our spending programs, social security, Medicare, in line with their revenue. We really need to address this debt over the medium long term, not continue to add to it further.

ZACK GUZMAN: And at the very least, I suppose, if you have to add to it further, maybe focusing on the people who might need it most, and as you said there, the SALT cap repeal, not exactly one of those things. Marc Goldwein, appreciate you coming back on here to chat with us. He's Senior Policy Director for the Committee for a Responsible Federal Budget. Thanks again. Be well. We'll chat soon.