Did a Tax Increase Tucked Into Trump’s Tax Cut Come Back to Bite Republicans?

Did a Tax Increase Tucked Into Trump’s Tax Cut Come Back to Bite Republicans?

President Trump’s $1.5 trillion tax cut was supposed to be a big selling point for congressional Republicans in the midterm elections. Instead, it appears to have done more to hurt, than help, Republicans in high-tax districts across California, New Jersey, Virginia and other states.

House Republicans suffered heavy Election Day losses in districts where large concentrations of taxpayers claim a popular tax break — the state and local tax deduction — which the law capped at $10,000 per household. The new limit resulted in an effective tax increase for high-earning residents of high-tax states who claim more than $10,000 per year in SALT.

Democrats swept four Republican-held districts in Orange County, Calif., where at least 40 percent of taxpayers claim the SALT tax break, defeating a pair of Republican incumbents and winning seats vacated by Representatives Ed Royce and Darrell Issa. Those districts include longtime Republican strongholds, like Newport Beach, and rank among the country’s largest users of the state and local tax break.

Representative Barbara Comstock lost a seat in Northern Virginia, where more than half of taxpayers claim the SALT deduction, by nearly 13 points. Representative Erik Paulsen of Minnesota, a huge champion of the tax bill, lost by about the same margin in a district where 40 percent of taxpayers claim the deduction.

“The state and local tax deduction being capped at $10,000 hurt a lot of people in our district and our state,” Mike Levin, a Democrat who won an open seat that was previously held by Mr. Issa, said in an interview shortly before the election.

The SALT cap may not have been the primary motivation for voters in choosing Democratic candidates. But a review of polling data over the past year suggests that the limit has some key Republican constituencies feeling bittersweet about the new law — and more willing to back Democrats in House elections.

New Jersey Democrats wasted little time after the election to begin pushing to lift the SALT cap. On Monday, Representatives Bill Pascrell and Josh Gottheimer called for reinstatement of the full deduction, in a news conference in front of a salt depot in Ramsey, N.J.

Before the new law, taxpayers could deduct the full amount of state and local taxes — including income and property taxes — they paid each year from their federal tax returns. The deduction particularly benefits high earners who are more likely to itemize their deductions, instead of claiming the standard deduction. And it tends to benefit taxpayers in more liberal states, like New York and California, where tax rates are often higher.

It also costs the federal government billions of dollars each year and lawmakers looked to limit the tax break to help pay for the $1.5 trillion tax cut. The cap is expected to generate about $70 billion per year, according to the Tax Policy Center.

In their first draft of a tax bill last year, House Republicans proposed to scrap the deduction entirely. That caused an outcry from several Republican lawmakers who represent high-tax districts in New Jersey and California. Even after party leaders offered the $10,000 cap as a compromise, several of those Republicans voted against the final bill, saying it would raise taxes for their constituents.

Representative Dana Rohrabacher of California, in an op-ed column explaining his ‘no’ vote, said that the law “would raise taxes for many of my constituents.”

Representative John J. Faso of New York complained in a news release that the SALT cap “impacts New York families more severely than those in other states.”

Mr. Rohrabacher and Mr. Faso lost their seats, as did Leonard Lance of New Jersey, who similarly voted against the tax bill.

The law, as enacted, cuts taxes for most Americans in the first year. But about two million Americans who claim more than $10,000 a year under SALT will see a net tax increase this year from the law, according to the independent Tax Policy Center in Washington. They account for about 1 percentage point of the 6.3 percent of taxpayers who will see a tax increase this year from the changes to the individual tax code, the center’s data shows. Analyses suggest that group skews heavily toward households earning $200,000 or more.

In the months leading up to the election, the online research platform SurveyMonkey interviewed nearly 30,000 registered voters about their opinions on the tax law, their voting intentions and other topics. A New York Times analysis of that data suggests that the cap on the SALT deduction may have had a significant effect on voters’ views of the tax law — and perhaps even on how they voted.

Voters in areas where a large share of households take the SALT deduction were significantly more likely to say that they opposed the tax law. That was true even controlling for factors like education, income and partisanship. Even among Republicans, the tax law was significantly less popular in ZIP codes where a large share of households took the SALT deduction in 2016.

Voters in those areas were also more likely to say they planned to support Democratic candidates in the midterms, although it is unlikely enough votes were swayed to affect the outcome in all but the tightest of congressional races. (Other factors, such as education, gender and race had a far bigger impact.)

By contrast, there is essentially no evidence that other elements of the tax law helped Republicans. Republican incumbents fared no better in districts where voters got larger tax cuts, for example. And a majority of independent voters said they opposed the law, according to the SurveyMonkey data.

Republicans struggled in the suburbs in the midterms, for many reasons — chief among them a growing dislike for Mr. Trump among voters who graduated from college, especially women.

Those losses included a drubbing in the districts where the SALT deduction is most heavily claimed. Democrats won 10 of the 20 Republican-held districts where the largest proportion of taxpayers claim the deduction, including seats in California, Virginia and New Jersey.

Some Democratic challengers in those districts criticized the SALT limit on the campaign trail.

Still, there is little evidence to suggest that SALT alone tipped those districts toward Democrats, who largely focused on health care in their policy pitch to voters.

The SALT provision appears to have gone largely unmentioned in Democratic attack ads: Researchers at the Wesleyan Media Project compiled a full report on mentions of tax issues in House campaigns, and SALT did not appear anywhere in their findings.

Democrats don’t have much chance of repealing the cap in the next two years, because Republicans still hold the Senate and the White House. Even if they controlled the whole government, Democrats might struggle to repeal the caps — because they would be, in effect, reversing a tax increase on well-off Americans.

Simply reinstating the unlimited cap, without also reversing the changes to the alternative minimum tax, would deliver no benefit to low-income and middle-class Americans, according to a new analysis by the Institute on Taxation and Economic Policy, a liberal think tank. More than 85 percent of the benefits would go to the top 5 percent of American income earners. The top 1 percent of income earners would see an average tax cut of $35,000 each.

That math may be difficult to sell to a Democratic base that spent the past year calling the Trump tax cuts a giveaway to the rich.

Source link

About The Author

Momizat Team specialize in designing WordPress themes ... Momizat Team specialize in designing WordPress themes

Related posts

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.