Senator Bernie Sanders said he is working on a proposal to set an income threshold for an unlimited state and local tax deduction while letting high earners continue to deduct $10,000 from their federal taxes as they can under current law.
“I am working with some of my colleagues to make sure that we come up with a proposal that protects the middle class, but does not end up with an overall reconciliation bill, in which millionaires are better off tax-wise than they were under Trump,” the Budget Committee chair told reporters Tuesday.
Sanders, a Vermont independent who caucuses with Democrats, said he is working on a plan that would give an unlimited deduction on federal returns for state and local taxes, or SALT, under a certain income level that is still being negotiated. Sanders has previously floated about $400,000 in annual income as the limit for unlimited SALT write-offs.
Senator Bob Menendez, a New Jersey Democrat who is also working on the proposal, said the lawmakers are looking at options that won’t add to the deficit. He said that they are still waiting for data from congressional scorekeepers, but that the income threshold could be as much as $500,000.
Senators are aiming to set the threshold at a level as high as possible that still doesn’t add to the deficit, Menendez said.
“If the revenue note says it will be revenue neutral at $500,000, it will be $500,000,” he said, referring to the estimates from the Joint Committee on Taxation.
Sanders said that those earning above the top limit could still claim up to $10,000 in SALT, the maximum deduction currently permitted in the tax code. Sanders said the senators are still discussing how the phase out of the unlimited write-offs would work.
The politically important SALT break has become one of the most contentious fights among Democrats as they look to finalize legislation for President Joe Biden’s wide-ranging tax and social program. Democrats have said they must address the restrictions put on the SALT deduction in President Donald Trump’s tax law, but have been grappling with data that shows expanding the break would deliver large tax benefits to some of the wealthiest Americans.
The Senate approach would likely replace the SALT measure in the House version of the bill that calls for lifting the cap to $80,000 from $10,000.
About two-thirds of households earning at least $1 million would receive a tax cut under the House bill, largely because of the higher SALT cap, according to estimates from the Urban-Brookings Tax Policy Center. The bill includes a surtax for those earning more than $10 million, but keeps in place the 37% marginal tax rate from the Trump era.
Republicans have widely criticized Democrats for their efforts to make the SALT deduction more generous. Representative Kevin Brady, the top Republican on the House Ways and Means Committee says Democrats are struggling to reconcile their professed desire to tax the rich, while also making good on campaign pledges to expand the popular tax breaks.
“Democrats now seem obsessed with repealing the SALT cap even though the vast majority of it goes to the wealthy,” Brady said.
The House is aiming to vote on Biden’s economic package this week, which includes the $80,000 cap on SALT, though that approach is likely to change after the bill is revised in the Senate.
— With assistance from Laura Litvan
