Congressional Democrats floated fresh proposals on how to increase the federal deduction on state and local taxes, but House and Senate lawmakers were at odds over whether the very rich should be allowed to take the tax break.
Senate Budget Committee Chairman Bernie Sanders — a Vermont independent who caucuses with Democrats — and New Jersey Democratic Senator Robert Menendez held a joint press conference on Wednesday to announce they had agreed in principle that people with incomes going up a certain level, roughly $400,000 to $550,000, should be able to take the tax break. The deduction was limited to $10,000 under the Republican tax bill passed in 2017.
Sanders indicated he wouldn’t favor a proposal from House Democrats, unveiled minutes earlier, to raise the limit on the deduction to $72,500 through 2031 with no income restrictions, because it would be too favorable to the very rich. The
Representative Tom Malinowski of New Jersey said the House would be voting on his $72,500 cap proposal, and that he didn’t favor income limits. He added that his proposal wouldn’t add to the deficit. Democrats can make that claim because during the 10-year budget window, the cap is currently scheduled to end in 2025, and the House plan would institute a new cap through 2031.
House Ways and Means Committee Chairman Richard Neal said the issue remained in flux.
“Everybody has to hold their fire until we find an agreement,” he said Wednesday afternoon outside the House floor. “In the last half hour on the floor, I heard at least 20 suggestions on what to do.”
Referring to the $72,500 cap proposal, Sanders said that would provide 37% of its benefits to the top 1%.
“In other words, this is a better proposal than eliminating the SALT completely, but it still is quite regressive,” he said.
One plan floated among House Democrats earlier in the day would allow unlimited deductions for taxpayers earning as much as $400,000, with a phase-out for those earning up to $500,000, a person familiar with the discussions said.
Previously, some Democrats were pushing a five-year suspension of the cap. That idea was opposed by progressives who said it would give a tax break to billionaires.
The SALT cap is one of several items that have been under negotiation for inclusion in the roughly $1.75 trillion tax and spending plan that makes up the bulk of Biden’s agenda. Lawmakers from the Northeast and other high-tax areas have been lobbying to suspend or significantly raise the cap and have threatened to withhold support for the overall package if it’s not included.
