SALT Cap Limbo Threatens Suburban Swing District Democrats
(Bloomberg) -- Democrats risk losing their edge in key suburban districts amid a congressional stalemate over President Joe Biden’s economic agenda that threatens plans to expand a tax break for well-off homeowners.
Many voters in affluent suburbs across the country from New Jersey to Washington state abandoned the Republican party in the 2018 congressional elections, helping to swing the House into Democratic control one year after the GOP set a $10,000 limit on the long-standing federal deduction for state and local taxes, or SALT.
Those same districts are once again up for grabs as Democrats wrangle over the details of the tax and spending package, including the fate of SALT relief. Uncertainty over when -- or if -- a package containing SALT could pass threatens to jeopardize Democrats’ chances of maintaining their slim congressional majorities.
Representative Sean Patrick Maloney, who leads House Democrats’ campaign arm, says delivering relief from the SALT cap is “essential” for the party’s election prospects.
“We need to get that done. It’s not the only thing, but it’s a big thing,” said Maloney, whose district in New York’s suburban Westchester County is among those disproportionately hit by the SALT cap.
More than half of the 28 Democratic House incumbents who wrested their seats from Republicans in the 2018 suburban shift represent districts where the average SALT deduction was reduced by more than $10,000 because of the cap, according to a Bloomberg analysis of 2019 IRS data, the most recent available. In all but two of those districts, the average reduction was more than $5,000.
Among the 26 “Frontline” House seats that Democrats’ campaign committee has designated as most vulnerable, nine represent areas where the limit reduced the average SALT deduction by more than $10,000. Some other frontline districts are rural and less effected.
Nationally, more than 88% of taxpayers take a standard deduction rather than itemizing their taxes and only 11% of all filers take the SALT deduction. Sixteen of the 26 Democratic Congressional Campaign Committee’s Frontline incumbents represent districts with above-average numbers of residents impacted.
Democrats were so eager to lift the cap that a provision to do so was made retroactive in the House version of the Biden economic package, meaning taxpayers who benefit would get larger refunds when they file returns this April -- in time for Democrats to claim credit before the election.
But that is now on hold, with Democratic Senator Joe Manchin of West Virginia demanding the bill be revamped or set aside. The SALT deduction increase, meanwhile, has been under attack from some progressive Democrats, including Representative Alexandria Ocasio-Cortez, who called it “a giveaway to the rich,” a criticism Republicans have echoed.
Every seat will matter if Democrats are to maintain their narrow House majority amid a history of presidents losing congressional seats in midterm elections and a Republican edge from redistricting.
The SALT cap has ramifications beyond the individual taxpayers directly impacted, undermining local home values and threatening funding for schools, which are usually supported through local property and state income taxes, Maloney said.
Former President Donald Trump and Republican allies in Congress put the cap in their 2017 tax package to offset other cuts. Critics accused the GOP of targeting residents of Democratic-leaning states with higher taxes and the measure has been deeply unpopular in regions hit hardest, including New Jersey, New York and California.
Democratic Representative Mikie Sherrill picked up a New Jersey district Republicans held for 34 years in 2018 with a campaign that made grievances over the SALT cap a centerpiece. This year she traveled the district in a “Summer of SALT” campaign to promote her efforts to lift the limit.
Some 24% of filers in Sherill’s district took the SALT deduction in 2019 and on average the cap cut it down by $21,996.
“Any time we are fighting for affordability for our citizens, that’s really powerful,” Sherrill, now one of the vulnerable Frontline Democrats, said. “That’s what I was sent to Congress to do so I’m always proud to fulfill all the promises I made -- and this is a big one.”
Representative Haley Stevens also ousted a Republican in 2018 from her suburban Detroit district, where 12% of residents took the deduction.
“It’s really important,” Stevens, also on the DCCC’s priority list to defend, said. “I hear from constituents about it all the time, and it really has affected people’s bottom line.”
Representative Katie Porter, who in 2018 became the first Democrat to represent her Orange County, California, district since it was created in 1983, said the cap was “a very, very big issue” in that campaign.
More than a quarter of taxpayers in her district took the deduction in 2019, on average having it curtailed $18,636 because of the cap.
“It needs to be part of the larger tax package,” Porter said. “It was a serious hit to a lot of homeowners and a lot of California families.”
Maloney has a blunt pitch in mind for voters in such districts: “If you want your state and local deductions back, you have to vote for Democrats. Republicans screwed you last time, and they’ll do it again.”
Democrats in the Senate were haggling over how to handle the SALT cap even before Manchin publicly rejected the House legislation. Vermont Senator Bernie Sanders is seeking to limit the SALT deduction for higher-earning taxpayers. New Jersey Senator Bob Menendez wants to allow single filers making up to $550,000 and couples making up to roughly $950,000 to write off all their state and local taxes.
The House legislation would raise the cap to $80,000 for all taxpayers. Defenders of lifting the cap say the deduction, which dates back to the original income tax code passed in 1913, protects against double taxation.
Not all Democrats in competitive districts favor restoring the break. Maine’s Representative Jared Golden, who also ousted a Republican in 2018, was the only House Democrat to vote against Biden’s Build Back Better legislation and cited the SALT provision in explaining his vote. Only 4% of residents in his heavily rural district take the deduction.
“The current House version of SALT gives millionaires thousands in cash, while people who make less than ~$100,000/year get less than $20 on avg.,” Golden tweeted. “Why would we do that?”
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