Senate Democrats say a proposal to raise the cap on state and local tax (SALT) deductions, a top priority of Senate Majority Leader Charles Schumer (D-N.Y.), is likely to be cut from the revised Build Back Better Act.
Senate Democrats who were involved in negotiations over the bill before Sen. Joe Manchin (D-W.Va.) blew it up last month say there’s simply not enough room for the expensive tax change, which Republicans argue would benefit wealthy suburban households in blue states.
Pulling the SALT fix out of the legislation also will make it tougher to pass the legislation through the House, where last week three Democrats from New York and New Jersey insisted they won’t support any bill that doesn’t raise the $10,000 cap former President Trump imposed on SALT deductions in 2017.
“The problem that the Democrats have here is not only does SALT relief cost a lot of money, but it is extremely regressive,” Gleckman said. “We looked at a number of versions of this. We looked at an $80,000 cap, we looked at a $25,000 cap, we looked at a $400,000 phaseout … and there are real significant differences, but all of them are extremely distributionally regressive. All of them largely benefit the highest-income people, no matter how you do it.”
Middle-income individuals and families hardly see any benefit because the vast majority of them do not itemize deductions.
The Illinois congressional delegation is thus far standing firm in its bid to repeal the $10,000 cap on state and local tax deductions—albeit strictly along party lines.
It’s become a potentially divisive issue for Democrats—just as Republicans intended when the cap was instituted as part of the Trump tax cuts at the end of 2017. But it’s also proved to cut both ways.
A 2018 report issued by Chicago-area Democratic representatives, using data compiled by the Institute for Taxation and Economic Policy, found that 500,000 metro households felt the pinch to some extent, including 71,000 of 170,000 homeowners in the 6th District, where Casten unseated Roskam and is now trying to hold off Rep. Marie Newman after redistricting.
But repealing the cap has threatened to open a divide between Democratic progressives and traditional liberals. For progressives like Sen. Bernie Sanders of Vermont it’s also a fairness issue, in that if he insists that the richest Americans pay more in taxes, that also goes for Democrats in that group. He’s suggested repealing the SALT cap only up to household incomes of $400,000, citing President Biden’s like-minded campaign pledge that he would not raise taxes on those earning up to that amount.
Productivity gains in consumer electronics have not been able to exceed the erosion of the currency’s value.
Bills such as Build Back Better are just a piece of the reason — we have more coming. We have a huge demographic issue, and a huge Social Security and Medicare bill not yet paid. Shoveling out more money and writing more IOUs will not help matters.
The pandemic created a lot of uncertainty around state and local government revenues for much of 2020. That was a big reason for the dramatic boost in the rate of bonds issued with insurance that year: In total, $34.45 billion in new bonds carried insurance — the highest since the Great Recession ended in 2009. Even with the economic stabilization this year, insurance is still going strong. Through October 2021, wrapped municipal bond issuance totaled $31.5 billion, according to RBC Capital Markets.
Looking ahead, the chatter about municipal climate risk has been increasing in recent years. Extreme weather events linked to climate change have called into question the preparedness and resiliency of utilities and other government issuers, while studies point to the potential long-term economic effect. One BlackRock Investment Institute report estimated that some vulnerable cities could see economic losses of up to 10% of GDP without decisive action.
The bottom line: Insurance provided safety for muni market investors during the pandemic and its continued use indicates that investors and issuers are both finding it attractive in situations where there might be a little more long-term uncertainty. Climate risk plays right into this notion. While no one expects bond insurance to dominate the market as it once did, it’s likely that the pandemic spike in usage is here to stay.
Mega-Roth, backdoor IRAs and large retirement account balances would be limited under legislation approved Sept. 15 by the House Ways and Means Committee.
In a near party-line vote of 24-19, the changes were approved as part of the $3.5 trillion Build Back Better Act reconciliation recommendations that address everything from implementing infrastructure development and green energy incentives, to expanding Medicare, offering paid family and medical leave, and extending Trade Adjustment Assistance.
These revenue-raising retirement proposals are included in Subtitle I, “Responsibly Funding Our Priorities,” along with a host of other individual and corporate tax increases. The Joint Committee on Taxation estimates that these tax changes would raise approximately $2.1 trillion over 10 years to help pay for the fiscal year 2022 budget reconciliation bill. (For a more detailed description of the retirement-based revenue proposals, click here.)
Author(s): Ted Godbout
Publication Date: 16 Sept 2021
Publication Site: American Society of Pension Professionals & Actuaries