Democrats in the House and Senate are clashing over how to address a tax break that disproportionately impacts a number of Blue States.
Democratic lawmakers in both chambers want to make changes to the $ 10,000 cap for state and local tax deductions (SALT), a creation of the GOP, as part of their broad social spending and climate change legislation, but they have chosen different tactics: the House proposes to significantly increase the level of the cap, while the main senators support the exemption of taxpayers below a certain level of income.
It will be necessary to reach a resolution before the Democrats get a version of the budget reconciliation package to President BidenJoe BidenVideo of violence removed from Representative Gosar’s account after backlash Federal judge dismisses Trump’s efforts to block Jan 6 documents Expected price increases raise political stakes for Biden MOREthe office of.
Republicans passed the $ 10,000 SALT deduction cap as part of their 2017 tax law, to offset the cost of tax cuts elsewhere in the bill. The cap currently expires after 2025.
It has long been hated by politicians in high-tax states such as New York, New Jersey and California, who argue that the limit harms their residents as well as the states’ ability to provide services. But the cap is a delicate issue for Democrats, as analysts of all ideological backgrounds have estimated its complete repeal will cost hundreds of billions of dollars and greatly benefit high-income households.
Democrats have waited months to publicly release proposals on how to deal with the SALT deduction in the spending program, starting only last week.
The most recent version of the House bill would increase the cap from $ 10,000 to $ 80,000, keeping it at that level until 2030. The cap would then drop to $ 10,000 for 2031.
The proposal is expected to raise around $ 14 billion over 10 years, the chairman of the House Ways and Means Committee said. Richard nealRichard Edmund Neal 0.3% investment – capable of making a difference in preventing elder abuse Democratic leaders step up pressure on agenda laggards Biden JCT releases score for Elderly Bill social expenses of the Chamber PLUS (D-Mass.) Says. Neal described the negotiations around the SALT issue in the House as difficult and emotional.
“If you move an inch that way, then suspicion sets in, and if you move an inch in that direction, suspicion sets in,” he told reporters the week. last.
The House provision is supported by lawmakers who have pushed the most aggressively on SALT deduction limit changes. Democratic representatives. Josh gottheimerJoshua (Josh) Gottheimer’s Next Challenge Biden: Selling Infrastructure Bill CBO Says Lawmakers Will Have to Wait for Full Score on Social Spending The Hill’s 12:30 p.m. report: Democrats await CBO score for bill on social spending PLUS (NJ), Thomas Suozzi (NY) and Mikie sherrillRebecca (Mikie) Michelle Sherrill Senators Seek to Permanently Expand Telehealth Eligibility (NJ) said in a statement last week that the change “will put money back in the pockets of working middle class families in our districts and help ensure that our local communities can continue to make the investments we have made. need”.
But Sens. Bernie sandersBernie Sanders Progressives call for mayor of Buffalo to be removed from DNC position Democrats must evolve their voter communication strategies Media narrative has pushed back education role in Virginia election MORE (I-Vermont) and Bob menendezRobert (Bob) Menendez Spending bill faces Senate rush Republicans worry about Biden’s candidate for Ambassador to Germany Biden triggers high-stakes rush on spending framework MORE (DN.J.) said last week they were developing a proposal that takes a different approach, keeping the cap at $ 10,000 and making it permanent, but including an exemption from the cap for taxpayers with lower income. at a level between $ 400,000 and $ 550,000.
The proposals have some similarities. They both aim to allow the vast majority of households to be able to deduct all of their state and local taxes, and they are both designed not to add to the deficit.
But House and Senate Democrats argue their approach is the best.
representing Tom malinowskiThomas (Tom) Malinowski Israel Says Blacklisted NSO Group “Has Nothing To Do” With Government Policies Hillicon Valley – Race to Report Cyber Breaches Lawmakers Call on Biden Administration to Take Further Action Against spyware groups PLUS (DN.J.), who helped develop an initial version of the House proposal with Rep. Katie Porter (D-Calif.), Raised concerns about an income-based exemption for the cap.
“Income limits are tricky in part because there are some very wealthy people who don’t have a lot of income,” Malinowski told The Hill on Tuesday. “Meanwhile, in districts like mine … there are people who can earn over $ 400,000 a year but who would not be considered rich because of the cost of living.”
Moreover, Malinowski said, the House proposal is further advanced in its development.
“We can’t really have a conversation about the alternative proposals until we see how they at least achieve revenue neutrality,” he said.
Sanders and Menendez, however, argued that their proposal was the right approach to prevent the wealthy from getting huge tax relief.
Sanders told a press conference last week that while it is better to raise the cap than to repeal it altogether, an increase in the cap “is still pretty regressive.” Menendez said at the same conference that about 98 percent of New Jersey property taxpayers would be exempt from the cap under the Senators’ proposal.
The collaboration between Sanders and Menendez is remarkable as Sanders is a leading progressive and Menendez comes from one of the states where the SALT deduction cap has been a major issue.
A number of tax experts say the Senators’ approach makes more sense than the House’s proposal.
“It’s a more targeted approach to the middle class and doesn’t give a free tax cut to very high income earners,” said Seth Hanlon, senior researcher at the left-wing Center for American Progress.
Hanlon rebuffed Malinowski’s concern that an income-based exemption would be abused by low-income rich people, saying there was only a limit for a taxpayer in this situation to qualify for the SALT deduction.
The Left Institute on Taxation and Economic Policy released an analysis concluding that the House proposal would provide more of its benefits to households in the top 1 percent of incomes than that of the Senate. The think tank also felt that the Senate’s proposal would be less costly in the short term.
House and Senate Democrats said they were in contact with lawmakers in the other chamber to reach agreement on the SALT issue.
“Sen. Menendez continues to work with Senator Sanders to refine their income neutral proposition in a way that benefits as many middle-class families as possible in high-cost states like New Jersey,” said a Menendez spokesperson. “He has engaged with colleagues in the Senate and the House to move this important issue forward.”
Final agreement on changes to the SALT deduction limit may not come immediately. House Democrats are not expected to pass their version of the social spending bill until at least next week. The Senate is then expected to make a number of changes to the bill before proceeding to a vote.
“I told senators that I am open to their approach, and they told me they were open to ours,” said Malinowski. “We have a bit of time to figure out which approach or combination of approaches best achieves the goal. “
Some progressives have criticized the inclusion of the SALT deduction limit changes in the spending bill because of the potential benefits for high-income taxpayers. But the inclusion of a provision to lower the cap shouldn’t stop progressives from supporting the overall package, which includes spending in areas such as child care, healthcare and the climate.
“It might be one of those things we don’t like, but it’s going to be there,” Congressional Progressive Caucus chairman Pramila JayapalLawmakers Who Opposed Their Parties on T House Infrastructure Bill Pass Trillion Dollar Infrastructure Bill and Advance Social Spending Plan On The Money – Brought to you by Citi – A Divided room on a unified PLUS program (D-Wash.) Told reporters last week.