Reversal of fortune: Senate Democrats demand millionaire tax cut, GOP blocks it

Senate Democrats finally got a chance to put their mark on tax policy in the Trump era and inexplicably voted for a tax cut for millionaires.

Sen. Cory A. Booker of New Jersey backed the millionaire tax cut, which failed on a mostly party-line vote, but several of his rivals for the 2020 Democratic presidential nomination dodged the vote.

Sens. Elizabeth Warren of Massachusetts and Bernard Sanders of Vermont, who are running on tax-the-rich platforms, were no-shows. Sen. Kamala D. Harris of California, a Democratic presidential hopeful who vows to repeal President Trump’s tax cuts “Day One” of her presidency, also was absent.

The Democrats used a rare procedural move to force the vote that would have reversed the part of President Trump’s law to put a cap on deductions for state and local taxes.

The measure would have allowed a bigger deduction on federal income tax returns for residents in high-tax states, but more than half of the savings would have gone to families earning more than $1 million a year, according to Congress‘ tax scorekeeper.

Republicans said the entire episode smacked of hypocrisy.

“It’s bad enough that my Democratic colleagues want to unwind tax reform, but it’s downright comical that their top priority — their top priority — is helping wealthy people in blue states find loopholes to pay even less,” Senate Majority Leader Mitch McConnell, Kentucky Republican, said before the vote.

The Democrats sought to remove the new $10,000 cap on the state and local deduction. The cap was placed as part of the 2017 Republican tax bill to end a system under which the federal government essentially subsidized high state and local taxes.

The effects are more pronounced in solidly Democratic states such as New York, New Jersey, Illinois and California, where higher state and local taxes translate to more lucrative write-offs on federal returns during tax-filing season.

If the cap was repealed, more than half of the ensuing benefits — an estimated $40.4 billion in 2019 — would go to people making at least $1 million, according to a June estimate from the Joint Committee on Taxation, Congress‘ impartial tax scorekeeper.

Senate Minority Whip Richard J. Durbin, Illinois Democrat, said the cap needed to be adjusted because it was hurting more than millionaires.

“It is hitting people in my part of the world, which clearly are slightly above middle class or the upper limits of middle class. Property has gone up so much in value that a family with an ordinary income is paying property taxes that they never dreamed of,” he told The Washington Times.

The measure, known as a resolution of disapproval, fell in a 43-52 vote with two senators crossing the aisle.

Sen. Michael Bennet of Colorado, who also is seeking the Democratic presidential nomination, joined the chamber’s Republicans in voting “no.” Sen. Rand Paul, Kentucky Republican, went the other way.

Democratic opposition to the new cap has been “puzzling,” said Nicole Kaeding, vice president of policy promotion at the National Taxpayers Union Foundation.

“It seems to fly in the face of the rhetoric used both by Democratic presidential candidates and then just Democrats in Congress in general,” she said. “Because limiting the SALT deduction means limiting a deduction that benefits high-income individuals.”

Democrats argue that many of their middle-class constituents do benefit from the deduction, pointing to IRS data that has shown nearly nine out of every 10 filers who claim the deduction make less than $200,000 per year, and more than half earn less than $100,000.

Democrats also accuse Republicans of including the provision specifically to punish blue states.

A federal judge recently dismissed a challenge to the new cap filed by a coalition of East Coast states, including New York and New Jersey. The lawsuit accused the Trump administration of imposing an “unconstitutional assault” on state sovereignty.

New York Gov. Andrew Cuomo, a Democrat, said his state was looking at its options, including a potential appeal.

“The bottom line is this policy is unprecedented, unlawful, punitive and politically motivated — and it must be stopped,” Mr. Cuomo said.

States such as New York and New Jersey also tried to pass workarounds that would let their residents effectively pay their state and local taxes as charitable contributions, then write them off on their federal returns to lower their overall tax bill.

The Trump administration responded with a new rule in June that gutted the workarounds. New York, New Jersey, and Connecticut then sued to try to reverse it.

The Senate vote would have negated that Treasury Department rule.

The move let Democratic lawmakers voice their displeasure with the Republicans’ $1.5 trillion tax cuts without having to vote to reverse the entire law, Ms. Kaeding said.

Among other provisions, the 2017 law also lowered individual tax rates across the board and doubled the standard deduction.

“The reason why we have not seen a repeal vote in Congress is a repeal of the [law] would raise taxes on low- and middle-income individuals,” she said. “And so they’re unwilling to take that vote.”

Ryan Lovelace contributed to this report.

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