Sanders said Tuesday his goal is a “proposal that protects the middle class, but does not end up with an overall reconciliation bill in which millionaires are better off tax-wise than they were under Trump.” He clarified the proposal would still allow rich taxpayers to deduct $10,000 in SALT as they can under current law.
After months of negotiations, Democrats have dramatically scaled back President Joe Biden’s proposals to hike taxes on the wealthy and corporations. And, largely as a result of its $80,000 SALT cap, the House reconciliation bill would ultimately give a tax cut to most of the top 1%, according to an estimate released Nov. 11 by the Tax Policy Center.
Taxes would still rise overall on the super-wealthy, thanks to measures such as a new 5% surtax on incomes in excess of $10 million, and an additional 3% on incomes more than $25 million.
However, the bill’s tax increases hit an exceedingly thin slice of the population: Just 0.2% of all taxpayers will pay more in income levies, according to the Tax Policy Center. Only about a fifth of those earning more than $1 million will owe more, the Washington-based think tank estimates, while 70% of these millionaires will get a tax cut.
For the super-rich, however, these tax cuts are likely to be so small they'll barely be noticeable. Marcum analyzed a married couple with $35 million in ordinary income, and found their overall tax rate – including the new surtax – would be around 42% no matter which SALT cap Democrats adopt.
By capping the SALT deduction at $80,000, a wealthy taxpayer paying the top federal rate of 37% would get, at most, $25,900 in tax relief. For the couple earning $35 million, this savings represents just 0.07% of their income.
“It gives some benefit to the wealthy, but it’s a negligible benefit,” said Ronald Finkelstein, a tax partner at Marcum who helps lead its national trusts and estates practice group. The alternative minimum tax, or AMT, will also limit the SALT advantage for some of these taxpayers, he said.
Even if the benefits of the SALT change are relatively small for the super-wealthy, it opens Democrats up to criticism from both the left and right.
"The occupants of the penthouse are getting a bundle, but the building janitor gets nothing," Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, told reporters Tuesday.
Lower-income taxpayers will benefit financially from other provisions in the reconciliation bill, including an extension of a more generous child tax credit. But they’ll generally get nothing from a higher SALT cap because they’re likely to take the standard deduction, which is $25,100 for married couples, rather than itemize their SALT, mortgage, charitable and other deductions.