Democrats consider repeal of SALT deduction cap

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A provision in the Trump tax plan has become a sticking point for some Democrats as they work to reach a deal on the $1.7 trillion social spending plan. A group of moderate lawmakers are pushing to repeal the so-called SALT deduction cap in the reconciliation package, saying “no SALT, no deal,” but other Democrats are trying to slam the brakes on the idea.

The state and local tax deduction cap, set to expire at the end of 2025, limits the amount of state and local taxes that taxpayers can deduct from their federal taxes to $10,000. That hits taxpayers in high-tax — and predominantly Democratic — coastal states harder. But as Democrats from those areas work to lift the cap, others say doing so would be a tax cut for the rich.

“The cap on the SALT deduction remains a punishing blow to our home states of New York and New Jersey as we work to recover from the pandemic and get our economies on strong footing and our constituents back to work,” said Representatives Tom Suozzi of New York and Josh Gottheimer and Mikie Sherrill of New Jersey in a statement Tuesday. 

Speaking to reporters, Gottheimer said he has been pushing for a full reinstatement of the deduction as part of the deal, though he would not say how long he wants that reinstatement to be in effect. House Ways and Means Committee Chairman Richard Neal said Thursday that the committee is still discussing the deduction. 

According to a committee aide, a proposal on the table would repeal the $10,000 cap for the 2021 through 2025 tax years. It would then be reinstated for five years after that, which the aide claimed would keep it close to revenue neutral. 

The Committee for a Responsible Federal Budget estimates a five-year repeal of the cap would cost roughly $475 billion with $400 billion in tax cuts going to the top 5% of households. It would be more costly than other parts of the social spending agenda, including the extension of the monthly child tax credit payments, universal pre-K, affordable child care and more. 

Senator Bernie Sanders released a statement blasting reports that negotiators are working on a SALT cap repeal, which he called “unacceptable.” The Vermont independent said repeal would result in the top 1% paying lower taxes after passage of the Build Back Better plan than they did after the Trump tax cuts in 2017.

“At a time of massive income and wealth inequality, the last thing we should be doing is giving more tax breaks to the very rich. Democrats campaigned and won on an agenda that demands that the very wealthy finally pay their fair share, not one that gives them more tax breaks,”  Sanders said in a statement. “I am open to a compromise approach which protects the middle class in high tax states. I will not support more tax breaks for billionaires.” 

A repeal of the cap is not part of the latest Build Back Better framework released by the White House last week, though Biden administration officials have previously said they are open to a repeal as long as lawmakers find a way to pay for it.

The negotiations come as other measures in the originally proposed reconciliation package such as tuition-free community college and paid leave have been cut amid efforts to reduce its price tag.

Ellis Kim contributed reporting. 

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