The WSJ reports that 20 states have measures to bypass a Trump-era tax on the wealthy. It's the kind of "trickle-down" economics Biden often decries.
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President Joe Biden keeps saying he's "tired of trickle-down" economics, but his party is making it harder to roll back a legacy of tax cuts for rich people stretching back many years.
Congressional Democrats are in the midst of sketching out a proposal to provide relief from the $10,000 limit on the state and local taxes taxpayers are able to deduct from their federal bill (SALT). Republicans put the cap in place as a way to help finance their 2017 tax law, and the measure hit wealthier taxpayers in high-tax states particularly hard — just the kind of highly educated and high-earning urban and suburban demographic that often votes Democratic.
Perhaps for this reason, lawmakers at the state level have been busy designing paths for business owners to bypass the $10,000 cap. The Wall Street Journal reported on Monday that 20 states, including the deep-blue California, New York, New Jersey and Illinois, have approved some alternatives.
There is no record of President Ronald Reagan ever using the term "trickle down," per Investopedia, which also notes that he embodied it in practice by reducing taxes on the wealthy, in the hopes that the benefits would "trickle down" in the form of increased business activity.
The Journal's reporting shows that at the state level, trickle down is alive and well.
"This is becoming the thing the cool kids are doing, if you're a state," Howard Gleckman, a senior Tax Policy Center fellow, told the Journal. "With state assistance, this is a classic case of business self-help in figuring out a way around this."
Some law firms and private equity firms are taking advantage of the workaround, such as Simpson Thacher & Bartlett and Cerberus Capital Management, the Journal reported, citing people familiar with the matter. Neither firm immediately responded to Insider's request for comment.
The provision varies across states, but typically, taxes are levied on certain businesses equivalent to that of their owners. They're deducted and the rest of the income goes to owners, the Journal reported. State laws then provide relief to income tax obligations that's separate from business income, so it's not subject to the SALT cap.
Meanwhile, Senate Democrats are struggling to achieve a compromise on SALT, which could hobble their goal of approving Biden's $2 trillion social spending plan by Christmas. Any rollback is bound to disproportionately benefit wealthier Americans who are better positioned to take advantage of the deduction.
