The costliest part of the Build Back Better Act is a $475 billion tax cut, with $400 billion of that going to the top earning 5% of households, according to the Committee for a Responsible Federal Budget. Each wealthy individual in the top tax bracket who can fully utilize the tax cut will see their 2021 federal tax liability decreased by $23,150. This, in my opinion, is outrageous.
The 2017 tax reforms limited the deduction for State and Local Taxes, commonly referred to as SALT taxes, to $10,000. At the same time the standard deduction was doubled and rates on tax brackets were lowered. While nearly all tax payers received a benefit from the 2017 act, lower and middle-income people saw the largest percentage reduction in their taxes. The 2017 act changes to personal income taxes are set to expire, or sunset, at the end of 2025. I have built a feature into my Tax Acuity software that allows an advisor to model how this change will affect their clients. Most lower and middle-income taxpayers will see their federal taxes increase by between 30% to 50%, while higher income people will see their federal tax liability increase by 7% to 10%.
The Build Back Better act increases the SALT limit to $72,500 in 2021, increasing to $80,000 over the next decade. I'm sure most lower and middle-income taxpayers can not imagine paying this much in property and state income taxes but for the wealthy, those making over $628,301, this is not uncommon. Being able to deduct $62,500 more in SALT taxes translates to $23,150 in tax reduction for those in the 37% bracket.
All the blame for this tax cut to the wealthiest people in the country can't be put on the Democrat's; 13 house Republicans also voted to pass this act. It is probably no coincidence that 11 of the 13 live in relatively high tax states.
I am favor of reducing taxes, but only if cuts benefit a wide range of taxpayers. While the low and middle-income people are feeling the effects of high inflation, handing a tax cut to the wealthy seems to be completely unfair.
For those of you using Tax Acuity, I will push out an update as soon at the Tax Cut for the Wealthy Act is signed into law.
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