(The Center Square) – Senate Democratic leader Chuck Schumer finally got a breakthrough with U.S. Sen. Joe Manchin on a climate and tax deal, but it may come at some expense to Schumer’s home state.
Manchin’s agreement on the so-called Inflation Reduction Act, which is expected to raise $739 billion in revenues and cut about $300 billion in the federal deficit, is considered critical in getting the spending bill out of the Senate. However, getting the West Virginia Democrat on board apparently came at the expense of eliminating the cap on deductions for state and local income taxes, also known as SALT.
In states like New York, eliminating the $10,000 cap has been a major platform item for many Democratic lawmakers.
“Our tax code should not favor red state or blue state elites with loopholes like SALT and should focus more on closing unfair loopholes like carried interest,” Manchin said in his surprising statement.
Manchin’s words also serve as a double whammy for New Yorkers. Now, not only may they not get the SALT relief they’ve sought for five years, but some businesses and individuals will see their tax bills go up.
In a tweet Thursday, Schumer said the new taxes would stop the “wealthiest individuals and largest corporations” from taking advantage of current tax laws.
But according to Will McBride, vice president of federal tax and economic policy for the Tax Foundation, it’s not just hedge fund and private equity managers. Entrepreneurs and small business owners used carried interest as well. More of their income would be taxed at rates of nearly 40% instead of the capital gains tax rate of 20%.
McBride also told The Center Square that the timing for the bill is curious since, by some measures, the U.S. economy is in a recession.
“It’s not at all very sound,” he said. “Very, very dangerous. Very risky. It’s seldom ever been done in history.”
The only time McBride could think of a tax hike coming during a recession was in 1980 under then-President Jimmy Carter.
What New York may get out of the bill, though, is billions to fund clean energy initiatives.
The bill includes $385 billion for clean energy. James Hanley, a senior policy analyst at the Empire Center, noted the legislation includes $10 billion in investment tax credits for products like electric vehicles, wind turbines and solar panels. There’s also $30 billion for production tax credits.
“The builders of wind turbines in New York will figure out whether the production tax credits or the investment tax credits work best for them. That’s hard to say right now … but they’ll be looking to grab as much of it as they can,” Hanley said.
Hanley also noted the bill will include tax credits for homeowners to make their homes more energy efficient. That would include installing rooftop solar panels or geothermal heat pumps.
“That’s mostly going to be snapped up by higher income people who were on the verge of making these choices anyway but are going to take that subsidy to make it much more affordable for them,” he said.
