Senate Democrats have an emerging agreement to exclude millionaires from an expansion of the state and local tax deduction, but key negotiators continue to clash over the specific income limits for one of the unresolved issues in President Joe Biden’s economic agenda.
Senators Bob Menendez and Bernie Sanders have been leading two Democratic factions in talks over how to address the tax break for people in high-tax states such as New York and New Jersey. Menendez, a New Jersey Democrat, wants a more generous federal deduction for state and local taxes, or SALT, while Sanders wants to curb the benefit so it won’t benefit the highest earning households.
“I want to work with Senator Sanders and that nobody that’s a millionaire or above will get access to SALT, even in a joint filing,” Menendez told reporters.
Menendez said the congressional tax scorekeeper, the Joint Committee on Taxation, found that the maximum deduction Congress could create that wouldn’t add to the deficit would be to allow singles earning up to $550,000 a year and couples making up to $1.1 million to write off all their SALT. Menendez said he would support curbing the income threshold for joint filers at about $900,000 or $950,000, so that those making $1 million wouldn’t benefit.
That idea, however, is still too generous for some Senate Democrats who want to trim the SALT break further. Sanders, a Vermont independent, has proposed only allowing singles and married couples earning up to $400,000 to write off all their SALT and phase out the tax break above that.
Sanders said he can’t support a proposal that would benefit the top 1% of households, which is roughly those earning $500,000 and above.
“You can’t defend a proposal in which the 1% gets a significant part of the benefit,” Sanders said. “It’s indefensible.”
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The current SALT deduction is capped at $10,000, regardless of income, a change included in President Donald Trump’s 2017 tax law. Senate Democrats have said they intend to leave the $10,000 write-off in place for taxpayers above the top threshold they ultimately set.
The SALT deduction has been one of the most controversial aspects of Biden’s economic agenda, which Democrats hope to complete before the end of the year. Democrats say expanding the $10,000 cap is a key priority, but doing so also means cutting taxes for many high-income households.
The cap is currently set to expire at the end of 2025 so congressional budget analysts have to assume that the cap would be fully lifted after 2025 because that is current law. As a result, if Democrats impose some sort of limit on the SALT deduction from 2026-2031, that counts as revenue for budgeting purposes.
“We were not sent here to cut taxes for the wealthiest people in the country and we shouldn’t have a package that does that,” Senator Michael Bennet, a Colorado Democrat who supports Sanders’ idea, said.
Senate Finance Committee Chairman Ron Wyden said he is working to broker a deal between the various groups and is confident a deal can be reached.
“Senators still have some differences,” Wyden said. “I talk to all of our Senators regularly. I’m responsible for that.”
