Democrats seek sweet spot for ‘SALT’ deduction

House and Senate Democrats struggle to reconcile a general desire to make the rich pay their fair share with a regional interest in restoring tax relief that disproportionately benefits high-income households.

The party has yet to find a solution to its “SALT” problem, but Democrats on both sides of the national and local tax deduction debate are willing to compromise.

Republicans capped the SALT deduction at $ 10,000 in their 2017 tax law, leading 10 Republicans in the heavily taxed states of New Jersey and New York to vote “no.”

There is bipartisan support for the repeal of the cap, which will expire after 2025. But Democrats are looking to address the issue in a filibuster-proof budget reconciliation bill this fall, which is expected to offset billions of dollars. dollars in new spending with tax increases that won’t happen. GOP support.

House Democrats cannot lose more than three votes on their side after a July 27 run-off between two Republicans to fill the vacant position in Texas’ 6th District. Senate Democrats can’t lose any in this chamber 50-50.

A compromise without a full repeal appears to be the direction Democrats are taking, according to lawmakers and their aides. They could lose two House Democrats – Tom Suozzi of New York and Josh Gottheimer of New Jersey – who have taken a hard line. But more limited SALT relief is seen as satisfying enough to lawmakers to avoid sinking the larger bill.

New Jersey Rep Bill Pascrell Jr., who joined Suozzi and Gottheimer earlier this year to pledge “No salt, no deal,” said in a brief interview that he was prepared to take a less than complete repeal. “I wanted to say that I had put [the cap] at around $ 25,000. But I’ll be content [$20,000],” he said.

Support for the SALT deduction has always been more regional than ideological.

Leading Democrats such as Senate Majority Leader Charles E. Schumer of New York and President Nancy Pelosi of California support repealing the cap because it would benefit their constituents. But they’re also aware of concerns from Democrats in low-tax states that the deduction, which can only be claimed by taxpayers who detail, helps wealthy households the most.

A 2019 Joint Committee on Taxation report predicted that 94% of the benefits of repealing the SALT cap that year would go to taxpayers earning $ 100,000 or more. But about a third of the returns claiming the deduction would be from households in the $ 100,000 to $ 200,000 range, the JCT found. In states like New York, New Jersey and California, where the cost of living is higher, these are middle income people.

Sanders proposal

Senate Budget Chairman Bernie Sanders, I-Vt., Set aside just $ 120 billion to ease the $ 10,000 cap in a budget proposal. The JCT told Suozzi’s office that his bill to repeal the cap would cost $ 385 billion.

Sanders didn’t include a specific proposal, but he wants to limit the deduction so that it cannot be claimed by wealthier taxpayers.

“We are looking at various options,” Sanders said last week. “In states with high taxes, it’s fair that people can get a big deduction. On the other hand, when you look at billionaires who own multi-million dollar mansions, should they be able to get the full deduction? No.”

A source familiar with the thought of Sanders said he would be comfortable repealing the cap but phasing out the deduction for those making more than $ 400,000 a year. This is the income threshold that President Joe Biden has used to limit his tax hike proposals to ensure they target high income earners.

The JCT estimates that if the $ 10,000 cap were repealed, 71% of the benefit would go to households earning $ 500,000 or more.

“Positive development”

Despite their push for a full repeal, Suozzi and Gottheimer hailed Sanders’ withdrawal for partial relief.

“It is a very positive development that Senator Sanders has included in his proposal,” Suozzi said at a press conference last week with union representatives who support his proposal to repeal the $ 10,000 cap. They include teachers, police and firefighters who personally benefit from the break and also want to ensure that states and local government services are funded.

“I can’t speak for everyone… but for me ‘No salt, no deal’ is that we want a complete repeal,” Suozzi added. “If you want to change anything in the tax code, you won’t get my vote unless you repeal the SALT cap.”

Gottheimer said Sanders’ recognition of the need for SALT relief is a “good signal” that he and other progressive Democrats are starting to recognize that it is “not just a problem of the haves.” But he is not yet ready to compromise.

“At the moment, I am in favor of a complete repeal,” Gottheimer said. “I have to watch the whole of [the package] … So it is difficult to give an uncompromising answer on anything.

So far, 96 House Democrats have co-sponsored Suozzi’s bill to completely repeal the SALT deduction cap, and a dozen Senate Democrats have signed on to Schumer’s complementary measure.

A Democrat supporting the full repeal, speaking on condition of anonymity, said most supporters of the repeal are willing to settle for a compromise as long as it relieves middle-income homeowners who pay high property taxes.

New York Democrat Alexandria Ocasio-Cortez, virtually the only member of a high-tax state opposed to the full repeal over concerns about giving tax breaks to the wealthy, said she noticed that more lawmakers were interested in compromising on the issue.

“Full repeal is where we have a problem,” she said. “But there are definitely areas of flexibility where we can connect with families who are really stuck in places like New York with a very high cost of living.”

‘I’m still watching him’

The tax drafting boards should do the heavy lifting to find a SALT compromise. Both presidents have recognized the need to address the cap in a reconciliation bill, but say they have yet to come up with a proposal to thread the needle.

“We’re still reviewing it,” House Ways and Means president Richard E. Neal said in a brief interview on Tuesday.

The Massachusetts Democrat, who personally supported the full repeal, declined to speculate whether a compromise solution would simply increase the cap or remove the deduction at a certain income threshold. “But I hear about it a lot,” he said.

“Republicans have intentionally targeted middle class homeowners in Democratic states, and we seek to provide relief to those homeowners. Conversations are ongoing about how we’re going to proceed, ”Senate Finance Chairman Ron Wyden, D-Ore., Said in a statement.

Several major GOP targets from states such as California, New Jersey and Illinois are among those complaining that the cap is taking a bite, including Democrats who showed up and won in 2018 partly on a pledge to get rid of the Republicans-imposed SALT limit.

But most swing district Democrats come from low-tax states, where the $ 10,000 cap is not a problem. If they vote to increase or eliminate the SALT cap, Republicans will undoubtedly launch attack ads hitting them for supporting tax relief for the rich.

Rep. Stephanie Murphy isn’t one of the most threatened Democratic incumbents, but Republicans believe they have a chance of defeating her next year, especially if the redistribution puts more GOP voters in her central district. from Florida. Murphy, in many ways, personifies the hurdles faced by supporters of the full cap repeal.

She is co-chair of the economy-conscious Blue Dog Coalition and sits on Ways and Means. Murphy said the SALT relief “does next to nothing” to help his constituents since Florida has no income tax.

“We’ll see if there’s a way forward for… some sort of compromise position,” Murphy said Tuesday during a BakerHostetler webinar. “But at a time when we are looking for income… it’s hard to argue for lifting that cap because we’re going to have to find a way to pay for it as well.”

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