WASHINGTON — As lawmakers put together for one more spherical of fiscal stimulus to handle financial fallout from the coronavirus pandemic, Speaker Nancy Pelosi advised the subsequent package deal embody a retroactive rollback of a tax change that harm excessive earners in states like New York and California.
The transfer to carry a restrict on the state and native tax deduction, or SALT, would supply a fast money infusion within the type of elevated tax rebates to an estimated 13 million American households — almost all of which earn a minimum of $100,000 a yr. Greater than half the advantages of such an effort would go to millionaires.
In an interview with The New York Instances, Ms. Pelosi mentioned the subsequent section of an financial rescue package deal ought to embody further measures to get more cash on to people — just like the $1,200 direct funds for low- and middle-income taxpayers that have been licensed within the $2 trillion invoice that President Trump signed on Friday.
That could possibly be achieved, she mentioned, by having Congress “retroactively undo SALT,” a reference to a cap on the state and native tax deduction that Republicans included of their 2017 tax overhaul. That restrict prevents households from deducting greater than $10,000 a yr in state and native tax bills from their federal tax payments.
“We might reverse that for 2018 and 2019 so that individuals might refile their taxes” and obtain more cash again from the federal government, Ms. Pelosi mentioned. “They’d have extra disposable earnings, which is the lifeblood of our financial system, a client financial system that we’re.”
Within the 2018 midterm elections, Democrats wielded the SALT limits in House campaigns against Republicans in wealthy blue-state suburbs of cities like New York, Los Angeles and Chicago. Democrats voted last year to repeal the cap, but the effort died in the Republican-controlled Senate.
Republicans called the effort hypocritical, saying that it would primarily benefit wealthy households in high-tax states. Democrats had roundly denounced the 2017 law, which included rate cuts for businesses and individuals, as a handout to the rich. But the SALT deduction overwhelmingly benefits high earners.
The congressional Joint Committee on Taxation estimated last year that repealing the SALT limit for 2019 alone would reduce federal revenues by about $77 billion. Americans earning $1 million a year or more would collectively reap $40 billion of those benefits. Most of the rest would go to households earning $200,000 or more.
That is a contrast with the bill Mr. Trump signed on Friday, which began to phase out direct payments for households earning $150,000 or more.
Ms. Pelosi’s proposal represents “the way to get money into the hands of people who don’t benefit from the $1,200 checks because they make too much money,” said Kyle Pomerleau, a resident fellow at the conservative American Enterprise Institute. “It certainly gets money into hands. But I’m not sure it’s the correct hands.”
Many liberal economic policy analysts also oppose lifting the SALT cap, calling it regressive tax policy. Seth Hanlon, a senior fellow at the liberal Center for American Progress, said the same logic was also a reason not to lift the limit in the next economic rescue bill. That is particularly true because consumption data show that low- and middle-income Americans are more likely than higher earners to spend benefits from the government immediately and stimulate economic activity.
To continue with direct assistance, Mr. Hanlon said, “there are ways you could target it to truly middle-class people. The problem is, relatively few middle-class people claim SALT.”
The Tax Policy Center estimates that only 3 percent of households in the middle quintile of American taxpayers would receive any benefit at all from the SALT cap repeal.
“In and of itself,” Mr. Hanlon said, “it doesn’t strike me as the most effective way of targeting economic stimulus