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SALT Deduction Cap to Get ‘Meaningful’ Fix, Democrats Say

·3 min read

(Bloomberg) -- House Democrats said they will “undo” the $10,000 cap on the federal deduction for state and local taxes, after the Ways and Means Committee didn’t address the tax break in a package of proposals released Monday.

Ways and Means Chairman Richard Neal in a joint statement with Representatives Tom Suozzi of New York and Bill Pascrell of New Jersey said the committee’s tax plan was not the final step for legislation to enact President Joe Biden’s agenda. They called the SALT limit enacted in the Republican’s 2017 tax law “short-sighted.”

“We are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities, and we are working daily toward that goal,” the lawmakers said.

The lawmakers didn’t say how they would alter the deduction or when it would be included in legislation. In 2019 Suozzi sponsored legislation that aimed to double the cap to $20,000 that year for married couples filing jointly, then temporarily repeal the cap for the following two years. Those changes would only have applied to people making under $100 million a year.

Restoring the full SALT deduction would cost the U.S. Treasury $88.7 billion in lost revenue for 2021 alone, according to the Joint Committee on Taxation. A multiyear repeal would cost considerably more, eating into resources that some Democrats would like to spend on other priorities.

The deduction is a tricky issue for Democrats as they try to put together a structure to pay for Biden’s plans. A group of lawmakers from high-tax states has warned they won’t support any legislation unless the SALT cap is addressed.

“I have been consistent for six months: ‘No SALT, no deal’,” Suozzi said in a statement earlier Monday.

QuickTake: All About SALT, the Tax Deduction That Divides U.S.

But some party progressives, including New York Representative Alexandria Ocasio-Cortez of New York have called the SALT deduction a give-away to the rich because most of the benefits flow to high-income households.

Suozzi and other advocates for restoring the tax break have argued that limiting the SALT deduction hurts residents in their districts and others like them because it raises taxes on middle-income earners who aren’t able to claim all their property and income taxes against the federal tax bills.

House Speaker Nancy Pelosi can afford to lose no more than three Democratic votes to get the final package through in the face of expected unified Republican opposition.

“As work continues between the House, Senate and White House on this and other unfinished but critical items, fixing Republicans’ SALT cap attack on progressive state and local governments absolutely remains a priority for House Democrats in the final reconciliation package,” Pelosi spokesman Henry Connelly said in a statement.

The Ways and Means Committee, like other House panels, has a soft deadline of Wednesday to complete the drafting of its parts of the Biden reconciliation bill and send the legislation to the Budget Committee.

Eventual language to address the SALT issue in the House could be added through any number of procedural stops on the way to the finalized version of the tax plan, including amendments on the House floor.

New Jersey Representative Josh Gottheimer, a Democratic proponent of repealing the cap, said he expects “lots of twists and turns” but is confident the final bill will address the issue.

(Updates with earlier plan, cost of repealing deduction in fourth, fifth paragraphs)

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