It’s pretty standard political rhetoric that Republicans always want to cut taxes for the wealthy and Democrats always want to raise taxes on the wealthy. But the past two administrations have turned that conventional wisdom upside down.
The 2017 tax reform, for instance, which was driven by congressional Republicans and President Trump, went out of its way to cut taxes for the middle class while not giving upper-income households a windfall. In fact, the cap on the deductibility of state and local taxes (SALT cap) took away a lucrative tax break that disproportionately benefited wealthy Americans in high-tax states (read: blue states).
We’ve written several times about the entirely rational justification for limiting the deductibility of state and local taxes. For too long the federal tax code, which allowed people to deduct their state tax obligations from their federal income taxes, effectively subsidized high-tax states, making it easier for those states to maintain their high-tax burdens without political opposition.
But now President Biden and congressional Democrats want to eliminate the cap on the deductibility of state and local taxes, because their wealthy constituents in New York, New Jersey, California and other high-tax states are screaming about it. It’s interesting that anti-SALT Democrats are not advocating for a reduction of taxes in their states. No, they want to keep their supposedly high level of government services but want taxpayers from low-tax states to resume subsidizing them.
Let’s be clear: Undoing the cap on the deductibility of state and local taxes is a significant tax cut for the wealthy.
And meanwhile, other Biden tax proposals will harm working Americans in rural areas. Congressman Randy Feenstra (R-IA) is working overtime to explain to Congress how Biden’s plan to cap stepped-up basis and like-kind exchanges will raise taxes on family farmers and make it much harder for farmers to pass on their farms to their children.
Without getting too technical, Biden’s plan to limit stepped-up basis calculations for capital gains means that passing a family farm from parents to children would result in enormous capital gains taxes that might make it impossible for the children to keep the farm. And a recent study by Texas A&M’s Agriculture and Food Policy Center finds that such a change in policy would impact up to 98 percent of farm transitions.
That’s a significant tax increase on working Americans, and it will largely impact rural, red-leaning states.
The net effect of these tax changes would be to cut taxes for the wealthy in high-tax states, which tend to be blue states, and raise taxes on family farmers in rural states, which tend to be low tax and red-leaning. Just thought you might like to know.