Lauren Underwood vs. Bernie Sanders: A SALT-y Lesson on How Not to Throw Out the Baby With the Bathwater

Bernie Sanders is restless.

The two-time presidential primary loser and current chair of the Senate Budget Committee is not just eager to move President Biden’s infrastructure and childcare agenda through Congress - as every Democrat is - he appears to be allergic to any talk of bipartisanship, Republican participation in the process, or of compromise. His blood pressure is rising seeing the President and the Vice President engage in negotiations with Republicans in a good faith effort to shape an infrastructure package.

For all his aversion to Republican engagement, though, Bernie Sanders does agree with Republicans about keeping part of Donald Trump’s tax legislation that predominantly hurts families in blue states and cities in place. Bernie Sanders told Axios’s Johnathan Swan that he is against allowing middle class families in high-cost areas of the country to fully deduct their state, local, and property taxes from their federal income taxes.
If you are not familiar with this issue, here is a crash course: Taxes paid to state and local governments, such as state income taxes, sales taxes, and property taxes, used to be fully deductible from federal income taxes. Generally speaking, the greatest portion of these is paid in the form of property taxes, and other taxes a typical family pays to state and local governments isn’t usually enough to need to itemize (that is, in order to not simply take the standard deduction).

In order to punish blue states (and even more precisely, cities), where property values tend to be high, the Trump tax heist law of 2017 limited this deduction to $10,000, regardless of filing status. This means that even middle class families who live in many parts of the country - predominantly Democratic states - have had their deductions limited. Republicans made no secret of the fact that they enacted the change specifically to target and punish people who don’t vote for them, but nevertheless, the SALT deduction was sold - and since has become known, according to conventional wisdom - as a tax break for the rich.

That sales job was based largely on analyses by many groups that showed - and still show - that the largest share of the dollar benefit of a SALT deduction goes to the richest people. The Center for Budget and Policy Priorities, for example, predicted that 56% of the dollars gained from the repeal of the SALT cap would go to the top 1% of income earners.

But the problem with this kind of analyses is that it doesn’t account for whom the money is most important to. An examination of IRS data on the distribution of state and local taxes as a percentage of adjusted gross income by the Tax Foundation shows that for those who itemize, the SALT deduction would help those earning between $100,000 and $400,000 the most, raising their effective take-home pay by 1.75%. The next highest-benefiting group are people who earn between $50,000 and $100,000, and it would reduce their federal taxes by 1.29%. By contrast, the deduction, even if it were unlimited, amounts to just 0.71% of income for those who earn more than $400,000/year.

In other words, while a repeal of the SALT cap might mean that the rich will get a disproportionate share of the dollar benefit on the aggregate, the people who need the break that will come from a repeal most are middle class families.

While some might argue that the rich shouldn’t get a tax break just so middle class families who can use the money could get some relief, too, it’s pretty difficult to defend continued punishment of the middle class just so the rich suffers what amounts to pocket change for them. The latter, in effect, is the argument Sanders and his allies are making.

But maybe there is a way to have our cake and eat it, too. What if, instead of wagging fingers at fellow members of Congress for representing the interest of their constituents, some members decided to devise a solution that gives middle class families, but keeps the rich from dipping their hands in it at the same time?

What if we figured out a way not to throw out the baby with the bathwater?

That’s what Lauren Underwood has decided to do. Underwood, a second-term Congresswoman from Illinois’ 14th district who has already passed more important bills bearing her name into law than Bernie Sanders has in over 30 years in Congress, is proposing legislation that would raise the cap to $15,000 for individuals, $30,000 for married couples filing jointly, and automatically adjusting the cap based on inflation.

Underwood’s legislation would return the full deduction for the vast majority of middle class taxpayers but would still limit how much of a tax deduction millionaires and billionaires can take for their second yachts.

The Underwood compromise may also point to a bipartisan reform of SALT. Republican Sen. Susan Collins introduced similar legislation earlier this year.

While Bernie Sanders was busy complaining about punishing the rich, Underwood was drafting a compromise to help middle class families that are caught in the middle of an ideological macroeconomic debate that has nothing to do with them. This is the difference between those who see their seat in Congress as a way to promote themselves and those who go to Congress to serve their constituents. Lauren Underwood is doing the work. Bernie Sanders is giving interviews to excuse Trump policies expressly meant to punish people who did not vote for the insurrectionist.

Incidentally, this is also the difference between gatekeeper progressivism and real, pragmatic liberalism: the former is about scoring points in an exclusive club, the latter about creating policies that can achieve broad based support. The former is motivated by punishing villains, the latter by helping people.

The former is about seeking out conflict for conflict's sake, the latter about devising solutions.

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