SALT-Cap Relief Faces Rollback as Democrats Eye Less Spending
(Bloomberg) -- Democrats risk settling for a less generous expansion of the state and local tax deduction than previously hoped after President Joe Biden conceded that lawmakers will have to scale back his economic agenda to get it enacted.
Biden, in a closed-door meeting with House Democrats on Friday, said the cost of the tax-and-social-spending package could potentially end up as a range around $2 trillion, down from a previously planned $3.5 trillion top-line figure. That means lawmakers will likely have to decrease the cost of nearly every spending program and tax credit in the legislation, including a planned increase in the state and local tax, or SALT, write-off.
“We have to see what the number ends up being because obviously the lower it goes the more things get squeezed -- not just SALT,” said Democratic Senator Robert Menendez of New Jersey, who has pressed for enlarging the benefit. “There is bicameral support and concern about SALT. So, we’ll see.”
Democrats advocating for a bigger SALT deduction had been pushing for a two-year repeal of the $10,000 cap on the tax break. The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper, estimates that a single-year repeal would cost nearly $89 billion, or $178 billion for two years.
A costly tax break that largely benefits high earners in New York, California and New Jersey is likely to pit lawmakers in both chambers who want to repeal the cap against progressives who are advocating to keep their preferred programs in the bill, including free community college tuition and funds for childcare and climate-related spending.
Representative Jimmy Gomez, a California Democrat on the House Ways and Means Committee, said it’s likely that SALT changes will be in the final bill, but lawmakers have to negotiate the broader spending totals to figure out how much money can be spent on the move.
Biden’s comments to Democrats to greatly reduce the amount of spending on education, climate programs and health care in the package -- a move made to prod moderates including Senator Joe Manchin to support the bill -- set off a race among Democrats to figure out how to salvage their preferred proposals.
Potential options for scaled-back SALT-cap changes include repealing the $10,000 cap for a single year instead of two, raising the deduction limit, or putting income restrictions on who can claim the write-off.
“Given the constraints they face, they may not go with straight-up eliminating the cap and instead do some easing of the cap,” said Kyle Pomerleau, a resident fellow at the American Enterprise Institute. “That eases some of the issues they may have with finding offsets.”
Representative Tom Suozzi, a New York Democrat leading the effort to repeal the SALT cap, said he’s confident that Biden’s tax and spending bill will pass with a SALT-cap repeal embedded in the bill.
“I don’t have any prognostication about the timing but I feel good that it’s going to happen,” Suozzi told reporters on Friday.
House Ways and Means Chairman Richard Neal has pledged to include SALT changes in a final bill, though he is still working on the specifics. He’ll be responsible for finding a solution that satisfies both the SALT-break advocates and the progressives.
“You really insist on torturing me,” he quipped with reporters last week. “SALT is going to be the death of me.”
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