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SALT-Cap Negotiations Falter, Dimming Hopes for a Deal This Week

SALT-Cap Negotiations Falter, Dimming Hopes for a Deal This Week

Senate Democrats negotiating an expansion of the state and local tax deduction aren’t near a deal, raising the prospect that talks will spill into next week -- and potentially next year.

Democrats have been divided over how generous to make the tax break, which benefits people in high-tax areas like New York and New Jersey, in President Joe Biden’s tax and spending plan.

SALT-Cap Negotiations Falter, Dimming Hopes for a Deal This Week

Senator Bob Menendez of New Jersey is pushing for the largest tax break possible without adding to the deficit, while others, including Senator Bernie Sanders of Vermont and Michael Bennet of Colorado say the benefits should be modest so that wealthy households don’t receive a tax cut.

“I think we will make some progress,” Sanders said Thursday, though declined to say how much longer negotiations will take.

The SALT deduction is one of the most contentious parts of Biden’s economic agenda. A deal on the tax break isn’t likely until the Senate is nearing a vote on the legislation, Senator Mark Warner, a Virginia Democrat also involved in the talks, said.

Menendez said he’s already made several compromises. He previously called for repealing the $10,000 cap on SALT and making the tax break unlimited. He is now pushing an unlimited tax break only for individuals earning less than $550,000 or married couples making roughly $1 million, thresholds that he says the Joint Committee on Taxation have concluded won’t add to the deficit over the 10-year federal budget window.

SALT-Cap Negotiations Falter, Dimming Hopes for a Deal This Week

“I already made compromises. I was for full repeal. I’m far less than that,” Menendez said Thursday.

Sanders wants to allow only those earning less than $400,000 to write off all their SALT from their federal tax returns and wants to use the additional revenue to pay for an expansion of dental and vision Medicare benefits. The House version of the bill raised the cap to $80,000 regardless of income.

The $10,000 cap on SALT was imposed in the 2017 tax law, but is currently set to expire at the end of 2025. Congressional budget analysts must assume the cap would be fully lifted after 2025 because that is current law. As a result, if Democrats impose some sort of limit on the SALT deduction from 2026-2031, that counts as revenue for budgeting purposes.

Senate Majority Leader Chuck Schumer said he wants to vote on the bill by Christmas, though Senator Joe Manchin of West Virginia has said he doesn’t want to rush to finish it.

“When was the last time you saw this body -- either team -- get something done before the last minute?” Warner asked reporters Thursday.

Several Democrats met with Senate Majority Leader Chuck Schumer earlier this week to discuss the various SALT options, but a follow up meeting isn’t scheduled yet. Bennet, who attended the Tuesday meeting Tuesday, said he’s not “thrilled” with Sanders’ because he thinks it’s too generous, but added would ultimately support that idea. 

Schumer, Bennet said, has expressed some support for the House plan to raise the cap to $80,000.

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