Building Back Better for the Wealthy

For all their talk about increasing taxes on the rich, the Democrats’ budget reconciliation plan might actually result in a tax cut for high-income households. The latest addition to their reconciliation bill is a provision to raise the cap on state and local tax (SALT) deductions from $10,000 to $72,500 for ten years.

Horace Cooper

Horace Cooper

A new analysis from the nonpartisan Citizens for a Responsible Federal Budget (CRFB) found that including this ten-year SALT cap increase would cost “roughly $300 billion through 2025, with roughly $240 billion going to those making over $200,000 per year.” In fact, CRFB says this giant tax cut for the rich is now one of the most expensive parts of the Build Back Better plan.

Why are the Democrats pushing this tax cut for the rich? Because a SALT cap repeal would overwhelmingly benefit high-earners from the progressive states they represent. One study found that more than 50 percent of the benefits of a full SALT repeal would go to taxpayers in just four states: California, New York, New Jersey, and Illinois. And a SALT cap increase would likely do the same. What do these states all have in common? Progressive governance and some of the highest state and local taxes in the nation.

Americans pay federal taxes in exchange for a wide array of federal services. This huge increase in the SALT cap would result in similarly situated taxpayers in low-tax states paying more for those services than those living in high-tax states — an unfair income transfer from low-tax states to high-tax ones.

President Joe Biden likes to tout the benefits that would accrue from his Build Back Better plan, but the fact is, what is shaping up in Congress is no plan — at least, not in the sense of a coherent strategy to address real economic issues. Instead, it is turning into a grab-bag of progressive policies that have little rhyme or reason topped with a series of unrelated tax hikes meant to pay for them.

Take drug pricing. The Democrats want to let Medicare negotiate the price of prescription drugs, which in practice would mean the government would set the price of the drugs Americans use most. Democrats also want to end the Trump-era Medicare rebate rule that has never been implemented.

An initial estimate by White House claims that fixing the price of prescription drugs would save $100 billion and ending the rebate rule would save another $150 billion. But here’s the rub.

The Medicare Trustees recently reported that the program was headed for bankruptcy by 2026, maybe sooner. Yet not a penny of the $250 billion in Medicare savings would go to shore up the program. Instead, it would go to cover the cost of things like increasing SALT deductions for the wealthy.

Not only that, but controlling the price of drugs comes with some major costs and very few benefits for most Americans. A recent analysis by economist Tomas Philipson of the University of Chicago found that those drug price controls would reduce drug company investment by 60 percent over the next two decades. This would mean that anywhere from 167 to 342 fewer new drugs would gain FDA approval over the next 20 years. Even if the Democrats pass something less ambitious it means fewer new drugs.

How many Americans are waiting on that miracle cure that might never come under the Democrats’ drug pricing plan?

In sum, the Democrats’ plan is to fix drug prices to save money in the Medicare program. But none of that money will go towards shoring up the Medicare program as it heads into bankruptcy. Instead, those savings will be used to partially cover the cost of a tax cut for higher-income earners in certain progressive high-property-tax states.

The reconciliation bill is clearly an incoherent mess that purports to favor the little guy while doing the opposite. If we want to truly “Build Back Better,” it’s up to moderate lawmakers in Congress to stand strong against such an ill-advised and disjointed piece of legislation.


Horace Cooper is a legal fellow at the National Center for Public Policy Research and co-chairman of the Project 21 black leadership network. This was first published by RealClearPolicy.

New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21, other Project 21 members, or the National Center for Public Policy Research, its board or staff.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.