Opinion

McConnell defeats Schumer’s tax cut for the wealthy

With their effort to repeal the SALT cap rule, Democrats show their hypocrisy

The push for a massive wealth transfer espoused by Sens. Elizabeth Warren, left, and Bernie Sanders, center, are at odds with their leader Chuck Schumer’s recent effort to help high-tax earners, Winston writes. (Bill Clark/CQ Roll Call file photo)

OPINION — With all things impeachment dominating to the exclusion of almost everything else, it’s not surprising that a very interesting vote took place in the Senate last week and almost no one noticed. But that vote illustrates the incredibly difficult dilemma facing the Democratic Party going into 2020.

Democrats running for president, including several sitting senators, have chosen to wage a divisive class-based strategy centered on punitively taxing the “wealthy” to fund their multitrillion-dollar “free stuff” agendas.

Back in D.C., their leader in the Senate, Chuck Schumer, seems to be walking a different path. Instead of working to lower drug prices or improve education or protect the climate, the New York Democrat, who represents one of the nation’s highest-taxed states, has chosen for one of his major political gambits legislative action that would almost singularly benefit the wealthiest, most elite taxpayers in the country. The very same people his Democratic presidential candidates have harshly criticized for “not paying their fair share of taxes.”

It all revolves around Schumer’s crusade over the past year to get rid of the $10,000 cap on the amount of state and local taxes people can deduct from their federal income tax bill. High-tax states like New York, California, Maryland and a handful of others have enjoyed unlimited deductions for years which, in effect, means that the federal government has been picking up a big share of the tab for the big spending social policies of blue states, mostly situated on the two coasts.

Or perhaps better put, people in low tax states — places like Omaha and Bismarck and Butte — have been forced to pay for profligate spending in high-tax states for decades. The Republican tax reform bill put an end (or nearly an end) to what have been national tax policies that favor rich elites in blue states at the expense of middle-class and blue-collar taxpayers in flyover country.

Last week, Schumer tried an end run to get rid of what he sees as an odious burden on the taxpayers of New York. Actually, it was the state of New York and others who tried an end run around the tax reform bill by creating state funds where taxpayers could “donate” their state and local taxes thus giving them the ability to claim them as “charitable contributions” and deduct them from their taxes.

Senate Finance Chairman Chuck Grassley called these workarounds “state-sanctioned tax shelters.” The IRS stepped in with new rules to prevent the blue states involved in the scam from circumventing the law.

And that’s what Schumer tried to stop last week by employing the Congressional Review Act, which gives Congress the authority to reverse executive branch regulations. His effort failed on a mainly party line vote, 43-52.

High-tax hypocrisy

Here’s where the irony comes in, pointed out by Majority Leader Mitch McConnell in remarks on the Senate floor. McConnell told his colleagues that the Democrats’ resolution “would help high-tax states — typically governed by Democrats — create workarounds for their high earners.”

“It’s bad enough that my Democratic colleagues want to unwind tax reform,” McConnell continued. “But it’s downright comical that their top priority is helping wealthy people in blue states find loopholes to pay even less.” He pointed out that Republicans hadn’t eliminated the deductions but had simply put limits on how much these wealthy, subsidized taxpayers could take.

And subsidized they have been. Reports done by the Joint Committee on Taxation on the potential repeal of the state and local taxes, or SALT, cap found that 94 percent of those who would benefit from the repeal of the current $10,000 limit on the SALT deduction are taxpayers with incomes over $200,000.

Just as a point of reference: The median income in the U.S. in 2018 was $61,937. The JCT reports also indicated that over half (52 percent) of the benefit from repeal of the deduction would go to those with incomes over $1 million, who would get tax cuts of almost $60,000. But your typical Americans, earning between $50,000 and $100,000, would get a measly $10 under the Democrats’ proposal.

According to Howard Gleckman of the Tax Policy Center, “The top 1 percent of households, those making $755,000 or more, would receive more than 56 percent of the tax cut.”

Does anyone else see a consistency problem here or, at a minimum, a large dose of hypocrisy? Of course, one man’s hypocrisy is often another’s rich irony. For Senate Republicans, last week’s vote, no doubt, produced no small amount of satisfaction, and rightly so. And it put both Senate Democrats and their presidential candidates in a politically awkward position.

On the record

Thanks to Schumer’s effort to undo the cap, the most “progressive” field of presidential candidates in history were asked to support one of the least progressive tax changes in recent memory. Therein lies the dilemma. They could vote ‘no’ and risk alienating Schumer and many of the Democratic Party’s big contributors whose habitat is often east of the Hudson River or west of the San Andreas Fault, not to mention other blue-state primary voters. Or vote ‘yes’ and face the prospect of trying to explain how giving this tax break for the wealthy jives with months of their promises to the contrary.

Presidential hopefuls Elizabeth Warren of Massachusetts, Kamala Harris of California and Bernie Sanders of Vermont took the easy path and simply didn’t vote. New Jersey Sen. Cory Booker, who represents a high-tax state, voted for Schumer’s resolution, while Minnesota’s Amy Klobuchar from flyover country, inexplicably, voted to give the wealthy elite their tax break back. Only 7.6 percent of Minnesota households are high-income ones making over $200,000 a year, according to the U.S. Census Bureau.

With another Democratic debate in the offing, maybe it’s time one of the moderators asked Warren, Harris and Sanders where they stand. Are they with Schumer on repealing the cap? If they are, how do they square that position with their class-based political rhetoric and calls for a massive transfer of wealth in this country? If they’re not, it illustrates perfectly the divide within the Democratic Party between progressives and party regulars like Schumer.

Schumer is on a mission that, if successful, will end up giving millions of dollars in tax breaks to the richest people in America. And at exactly the same time, the Democratic presidential field is running around the primary states embracing class-based language, demonizing the rich and successful, and promising to massively increase their taxes to pay for an ever-growing list of free stuff.

Sometimes the irony of a political situation is just too good to ignore. McConnell’s victory last week deserved more notice.

David Winston is the president of The Winston Group and a longtime adviser to congressional Republicans. He previously served as the director of planning for Speaker Newt Gingrich. He advises Fortune 100 companies, foundations, and nonprofit organizations on strategic planning and public policy issues, and is an election analyst for CBS News.

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