Many liberal Democratic officials around the country and especially in the Northeast, including Governor Lamont, are looking hypocritical for urging President Biden to help repeal the federal government’s limit on the deductibility of state and local taxes — the “SALT” tax deduction cap.
Liberal Democrats usually advocate more progressive taxation — that is, higher tax rates on higher incomes — and progressive taxation is exactly what the cap on SALT deductions is. It limits to $10,000 the deduction taken by federal income taxpayers for the state and local taxes they pay.
Anyone who pays more than $10,000 altogether in state income and municipal property taxes is probably doing well financially. Liberal and conservative tax analysts agree that most money saved by repealing the cap and restoring full deductibility for state and local taxes would go to the wealthiest people. One study says the wealthiest 5% would receive 86% of the savings.
Indeed, the SALT cap may have been the only liberal change in the tax code made by the Trump administration and the Republican majority in the last Congress, though of course they made the change for the wrong reason. The Republicans realized that the cap would be most annoying in high-taxing and wealthy but Democratic-leaning states — like Connecticut.
Progressive taxation is fine as a principle for liberal Democrats, but in practice it is something else when many of their most prosperous constituents vote Democratic. When the SALT cap was imposed, those constituents started to feel more of the burden of state and local taxes. Suddenly their big state and local taxes were no longer partially refundable by the federal government, and they were reminded that there can be a big cost to voting Democratic.
Pursuing redistribution of wealth from prosperous municipalities to poor ones, Connecticut’s most liberal Democratic state legislators, led by the president pro tem of the state Senate, New Haven’s Martin M. Looney, are advocating a “mansion tax,” a 1% state property tax on expensive homes. But the idea is a bit misguided, since property taxes are already progressive insofar as owners of expensive homes pay more even as they tend to use much less in local government services than other people do.
At least the “mansion tax” is consistent with progressive taxation even as repeal of the SALT cap would betray it. So will those most liberal Democratic state legislators chide the governor for supporting repeal of the SALT cap and opposing the “mansion tax”? Is the governor too moderate for them?
As the next election for governor approaches, Lamont might not mind being perceived that way. In high-tax and politically uncompetitive Connecticut, debate among Democrats over taxes would be a good sign and a reminder that the main beneficiaries of three decades of big tax increases have been only government’s own employees.
Not all Democratic state legislators want to be considered far left on taxes and spending. Some like to posture for restraint in government finance.
One of these Democrats, Guilford state Rep. Sean Scanlon, House chairman of the General Assembly’s Finance, Revenue, and Bonding Committee, has proposed legislation to limit municipal property tax increases and to have state government subsidize regionalizing municipal government services, which might save some money.
But Scanlon’s legislation would provide little restraint on spending and little tax relief. He would limit municipal property tax increases to 2½% per year, and while such a limit might be appreciated in New Haven, which recently endured a 10% increase, in many towns 2½% increases are normal. Indeed, a municipal property tax cap that really might restrain spending — say, a 1% limit — would never get past the legislature’s Democratic majority, since it would force towns to economize with compensation of municipal employees, the Democratic Party’s army.
Advocating regionalism is just how Democrats dodge economizing in local government. Regionalism might eliminate a few jobs once, but savings would be small and quickly devoured by the yearly increases in employee compensation under union contracts.
Personnel is the biggest expense of state and municipal government in Connecticut. As long as collective bargaining and binding arbitration laws put that expense beyond democratic control, there won’t be any savings.
Chris Powell is a columnist for the Journal Inquirer in Manchester, Connecticut.