Democrats appeared to be coming together Tuesday on a plan to scrap the $10,000 cap on deducting what’s paid in state and local taxes from federal tax bills for five years, and then reinstate it for five more years to pay for the temporary repeal.
But a leading progressive lawmaker and a key vote in the evenly divided Senate threatened to spoil the party for Democrats from high-tax states that have been pressing to get rid of the state and local tax deduction limit.
Senate Budget Chairman Bernie Sanders, I-Vt., said the proposal could cut taxes by $475 billion over five years, including lowering taxes for the richest 1 percent of households to below where they were after the 2017 tax overhaul enacted under President Donald Trump.
"This is beyond unacceptable," Sanders said in a statement. "I am open to a compromise approach which protects the middle class in high tax states. I will not support more tax breaks for billionaires.”
Sanders' opposition cast doubt on prospects for the latest compromise on "SALT," which has bedeviled Democratic leaders for months due to concerns about cost and the appearance of helping the rich. And opposition to the potential SALT agreement could hold up Democratic leadership’s effort to pass two bills encompassing much of the president’s agenda in the House this week.
Under the proposal circulating on Capitol Hill, the current $10,000 limit on SALT deductions would be repealed for the 2021 through 2025 tax years, then reinstated from 2026 through 2030 in Democrats’ roughly $1.75 trillion budget reconciliation bill, according to a Ways and Means Committee aide.
The option would cost nothing, more or less, making the repeal pay for itself within the 10-year budget window on which the package’s tax and spending levels will be measured, according to the aide.
“Today’s news is encouraging for a SALT cap repeal to be included in the final reconciliation package,” said Reps. Josh Gottheimer and Mikie Sherrill of New Jersey and Tom Suozzi of New York, all proponents of repealing the cap, in a joint statement Tuesday. “We will continue to work with House and Senate leadership to ensure the cap on the SALT deduction is repealed."
Senate Majority Leader Charles E. Schumer pitched the plan, the committee aide said. And support from Gottheimer, Suozzi and Sherrill adds backing from a trio that has pledged not to back a bill that didn’t include SALT relief in some form in the House, where Democrats have only a three-vote majority. "No SALT, no deal. No SALT, no dice," the trio said in their statement.
Sen. Bob Menendez, D-N.J., said Tuesday afternoon he hadn't seen the details, but noted concern about pushing the limit on deductions out longer.
“I am pragmatic enough to understand that creating relief in a way that is significant, like total relief for a period of time, might buy us the ability to get it permanently done, even if it's not in the immediate moment,” Menendez said. “So I'm open to thinking about it. But the further you extend the imposition of the cap, the less desirable.”
Sen. Benjamin L. Cardin, D-Md., said on Tuesday that he didn’t see why the plan for SALT would have to pay for itself and that he has “mixed views” on the plan for five-year repeal, adding it hasn’t been discussed among members of the tax-writing Senate Finance Committee.
Finance Chair Ron Wyden of Oregon, has this week referred questions on the SALT cap to Schumer.
Cardin said he supports getting rid of the SALT cap as soon as possible but is concerned adding it back in down the line could violate President Joe Biden’s pledge not to raise taxes on anyone making under $400,000 per year.
“What I had heard earlier is they're looking at a higher cap than $10,000 as a transition to this repeal, which I thought made some sense,” Cardin said.
Lawmakers were discussing multiple proposals to address the SALT cap this week as Democrats worked to land on an option that would deliver the votes to pass the reconciliation bill. Republicans created the $10,000 limit in their 2017 tax law, putting it in place through 2025 to help fund other tax cuts.
Many Democrats objected to the move, saying it targeted blue states. Some won election in 2018 running on the issue. They’ve said that the cap makes it harder for higher-tax states like New Jersey, New York, California and Maryland to charge higher taxes that fund liberal policies, and that it hits middle-class constituents.
That hasn’t sat well with a select few progressives, given that 71 percent of the benefit of SALT repeal would go to households making $500,000 or more, according to the Joint Committee on Taxation.
Democrats appeared to be landing on a SALT option that pays for itself after pressure to cut spending squeezed their options. The need to limit spending came from the Senate, where Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona have forced their party to pare back their plans, after weeks of effort to pass a $3.5 trillion bill.
An option that is cost-free on the books “would be helpful,” Ways and Means Chairman Richard E. Neal said Tuesday.
But if they hold the power to do so down the line, the same Democrats pressing for SALT cap repeal now would likely press for it again.
“I think it's pretty clear when they get tax relief it's going to be hard to take that back,” Gottheimer said Tuesday.
'Dialing it up, dialing it down'
Republicans criticized Democrats’ plan for the likelihood they’d seek to scrap the cap entirely within the next five years. The ranking Republican on the Senate Finance Committee Michael D. Crapo and GOP Whip John Thune of South Dakota described the move as a “gimmick.”
“They're turning it on, turning it off, dialing it up, dialing it down,” Thune said. “But the bottom line is we know their intention is to take the cap off deductibility, which would be a huge windfall for high-income earners."
Some members concerned with SALT have pressed for an option that would keep the cap in place but lift it to a higher dollar amount, keeping limits in place for the wealthiest taxpayers. But some of the staunchest SALT proponents have for months emphasized full repeal.
Other options that have come up for discussion include: raising the cap to a higher level and then extending it through the full next decade to avoid adding costs; two years of full repeal followed by four years of a $10,000 cap; phasing out the deduction based on income levels; and a much smaller cap lift that would give parity to married couples by doubling their deduction.
Ways and Means panel members discussed Schumer’s five-year repeal pitch during a meeting on Tuesday morning. Neal said discussions on it were ongoing in the afternoon and that the conversation on SALT options “just keeps on moving.”
“I have earned a Ph.D. here in the SALT deduction,” Neal said. “Because it’s been argued from every perspective I can think of.”
Chris Cioffi and David Lerman contributed to this report.