Democratic presidential candidate Pete Buttigieg took on one of the most fraught tax issues in Democratic politics, proposing that the $10,000 cap on state and local tax deductions be lifted.
Buttigieg updated his tax plan Monday, adding a plank that would remove the $10,000 limit on so-called SALT deductions for those earning up to $400,000, partially reversing a provision in President Donald Trump’s tax law that capped those write-offs, which were previously unlimited.
The proposal is likely to play well in high-tax states such as California, New York and New Jersey, Democratic strongholds where local leaders have said the cap hurts residents whose incomes and property values tend to be higher. Democrats say the cap had a political motivation because it overwhelmingly affects Democratic-dominated states.
But the plan could also open the candidate to criticism from some progressives who say most of the benefit of lifting the SALT cap would flow to top earners and homeowners, at a time when the party is focused on income inequality and large, new tax increases on the wealthy.
Buttigieg’s $7.2 trillion tax plan could protect him from some of those critiques. Only those earning less than $400,000 would be able to write off all of their SALT liability. The proposal also includes several tax benefits for lower-income people, including expanding the child tax credit to $2,000 a year and increasing the average earned income tax credit by $1,000 a year per household.
Corporations, investors and banks would also pay more. Buttigieg is calling to roll back the Trump tax cuts for the wealthy and for corporations. The effective tax rate for millionaires would increase to 49% from 31%, though the plan doesn’t specify how it reached those figures. He also calls for a 0.1% financial transaction tax on stock and bond trades and for raising taxes on corporations that shift jobs and profits overseas.
“Trump placed a politically motivated cap on SALT. Trump’s economic adviser gloated that it would deliver ‘death to Democrats’ by hurting families in Democratic-leaning states with high costs of living and more progressive tax policies and social services,” Buttigieg’s plan says. “Removing the SALT cap for families undoes Trump’s politically motivated tax increase and enables governors and mayors across the country to enact progressive tax policies.”
Republicans have said the change makes the tax code more progressive and that if Democratic states are worried that their residents pay too much in taxes, they should pass state and local legislation to lower those levies.