SALT-Cap Expansion Has Nowhere to Go as Biden Agenda Stalled

(Bloomberg) -- Democrats have limited legislative paths to expand the federal deduction for state and local taxes if President Joe Biden’s economic agenda remains stalled indefinitely because of Senator Joe Manchin’s opposition.

A vocal group of Democrats, largely representing high-tax areas in New York, New Jersey and California, have made the state and local tax -- or SALT -- write-off a must-include provision of the roughly $2 trillion tax and spending bill.

But if that legislation can’t get through Congress, lawmakers have little hope of finding another way to expand the tax break before the end of next year. That’s because it’s unlikely to move as a standalone bill, facing headwinds among some Democrats.

Manchin, the moderate West Virginia Democrat who said Sunday he can’t vote for Biden’s signature bill after months of negotiations over the package, is a crucial swing vote in the Senate. His announcement likely means Biden’s tax-and-spending bill won’t pass in the short term -- or potentially ever.

That would deprive a coterie of Democrats of being able to campaign on bigger SALT breaks, which they had hoped their voters would see on their tax returns in the next few months. The deduction is a politically important benefit for about two dozen Democrats who represent constituents with high state and local tax bills on their incomes and homes.

‘Hopeful’ Lawmaker

Democrats who have been advocating for a SALT-cap expansion since Biden took office say they are continuing to seek a way to salvage a deal, despite Manchin’s assertions that he cannot support the legislation.

“I am hopeful that we can find common ground to help lower prescription drug costs, cut taxes for middle class families with SALT, invest in pre-k for children and accomplish other common-sense priorities,” Representative Josh Gottheimer, a New Jersey Democrat, said in a tweet Sunday. “I will do my part to help bring everyone back to the table.”

The write-off isn’t universally beloved in the party. For one, it’s not a particularly important issue in areas with lower taxes. In addition, some progressives -- including New York Representative Alexandria Ocasio-Cortez -- oppose many of the efforts to make the tax break, which largely benefits higher-earners, more generous to taxpayers.

Gottheimer, a moderate, was one of a handful of House Democrats who pushed to de-link the Build Back Better agenda from the bipartisan infrastructure legislation that the House passed in November. Progressives had wanted to pass the two bills simultaneously, so that they had leverage to make sure Biden’s social agenda didn’t get killed in the Senate -- as, for the moment, now seems likely.

“Having passed SALT relief through the House four times, I remain as committed as ever to finding a path through the Senate for this and other New Jersey priorities,” Representative Mikie Sherrill, a New Jersey Democrat, said, referring to other SALT messaging bills passed in the House when President Donald Trump was still in office.

Other Democratic lawmakers leading the SALT expansion efforts -- Representative Tom Suozzi and Senator Bob Menendez -- didn’t immediately respond to requests for comment on the path forward for the tax write-off.

The SALT benefit was capped at $10,000 in the 2017 Republican tax law, and many Democrats come from areas where the average amount of tax paid far exceeds that limit. The House-passed version of Biden’s social-spending bill increased that cap to $80,000. Senators had been looking at other ways to expand the tax break, by instead making it available to only those under a certain income level.

The House version would have made the new tax break retroactive to 2021, meaning that taxpayers could claim the more generous version of the write-off on their tax forms when they file this spring.

Manchin has not said he opposes a more generous SALT deduction, in response to questions from reporters about the issue.

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