economy /

Biden's Build Back Better Plan Would Cut Taxes For Super Wealthy

President Biden’s Build Back Better plan is expected to result in a net decrease in taxes for the super wealthy as it repeals a cap on the amount of state and local taxes (SALT cap) that homeowners can deduct, a limit that was put in place by former President Trump’s Tax Cuts and Jobs Act of 2017.

According to the Committee for a Responsible Federal Budget (CRFB), the repeal of the SALT cap is a “regressive” tax cut, with an estimated loss of $90 billion a year in government revenue.

Putting the $90 billion per year loss in government revenue in perspective, the CRFB notes that for the $180 billion cost of a two-year SALT cap repeal, “policymakers could enact the President’s proposals to provide universal pre-K, expand the Earned Income Tax Credit (EITC) or the Child and Dependent Care Tax Credit (CDCTC), or provide free community college.”

Further, the $90 billion annual loss in government revenue would be enough to fund universal “pre-K, [expand the Earned Income Tax Credit], [expand the Child and Dependent Care Tax Credit], [Affordable Care Act] subsidies, paid leave, community college, and long-term care”

Ninety percent of the benefit of repealing the SALT cap would go to the top ten percent of earners, and an average annual tax cut of approximately $31,000 for those in the top one percent of earners.

With the benefits skewed toward the super wealthy, the CRFB explains, “repealing the SALT cap is far more regressive than the 2017 Tax Cuts and Jobs Act (TCJA). Over two years, SALT cap repeal would distribute over $300,000 to a household in the top 0.1 percent of earners compared to only $40 for a family in the middle of the income spectrum.”

In fact, Trump’s TCJA actually led to an increase in the share of taxes paid by the top 1% of earners, according to an analysis of Congressional Budget Office data by the Tax Foundation. The Tax Foundation explains that the TCJA reduced the average federal tax rate from 20.8 percent to 19.3 percent for all earners. For the bottom 20 percent of earners, their average federal tax rate fell from 1.2 percent to nearly zero percent. For the top 1 percent of earners, there was a 1.5 percentage point decline, from 31.7 percent in 2017 to 30.2 percent in 2018.

However, while the TCJA reduced household tax rates across the board, the share of federal taxes paid by the top one percent of households increased from 25.5 percent in 2017 to 25.9 percent in 2018. The Tax Foundation notes that the share paid by the top one percent in 2018 is the highest of federal taxes paid by an income group since 2008 and the third highest since 1979. By contrast, “the bottom 20 percent of households saw a reduction in their share of federal taxes paid, from 13 percent in 2017 to 12.5 percent in 2018,” the Tax Foundation states.

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