SALT Cap Changes Still in Play as Democrats Trim Biden Plan

(Bloomberg) -- The scaled-back spending package Democrats are wrangling over in Washington could still include a measure to expand or temporarily remove the cap on the federal deduction on state and local taxes.

House Ways and Means Committee Chair Richard Neal said addressing the $10,000 limit imposed by Republicans in their 2017 tax overhaul is still on the table. “Yes, it has to be,” Neal said when asked about it Wednesday.

New York Representative Hakeem Jeffries, a member of Democratic leadership, said Wednesday that SALT advocates will likely be able to get some changes to the tax break in the final bill.

“The strong consensus amongst the overwhelming majority of the members of the New York and New Jersey delegation is that some relief in terms of SALT should be part of this legislation,” he said.

The SALT discussion is taking place as Democrats wrestle with how to shrink the Biden agenda, with the White House and party leaders pushing for a deal on an outline this week President Joe Biden floated the outline of a possible compromise in the $2 trillion range with cuts to the child tax credit expansion, home care and an elimination of free community college on Tuesday as a way to bridge differences between party progressives and moderates.

Congressional Democrats including Speaker Nancy Pelosi on Wednesday said that no final decisions had been made on those or other aspects of the package as talks continue.

The debate about increasing or repealing the limit on the SALT write-off, a politically important tax break that benefits many suburban homeowners in high-tax areas, has been a persistent point of contention. House lawmakers are divided on it as Democrats face pressure to cut the overall cost of the package.

Differing Views

Key Democratic advocates, including Representatives Tom Suozzi of New York and Mike Thompson of California, say they prefer a complete repeal of the cap, a move that would allow taxpayers to deduct all their state and local levies from their federal tax bill.

Representative Bill Pascrell of New Jersey said he’s “more concerned about how long it lasts” and would favor a higher cap if it meant that the larger tax break was in place for more years. Representative Brendan Boyle of Pennsylvania said he could support raising the $10,000 cap to around $20,000 or $25,000.

Democrats had previously discussed a two-year repeal, something that would cost roughly $180 billion. But negotiators are now looking to cut the top-line spending total from an original $3.5 trillion to win support from moderate Democrats whose votes are vital to the legislation’s passage.

The scaling-down of the bill means it’s unlikely that $180 billion will be able to be allocated to SALT, according to a person familiar with the plan. That would require lawmakers to cut full repeal down to only one year, or find an alternative that increases the cap for a longer time period. Neal, after a closed-door meeting with members of his committee on Wednesday, said that the ultimate solution will involve compromises.

Biden Mum

Thompson, who met with Biden at the White House Tuesday, said he raised the issue during the meeting and discussed several options, though Biden didn’t give any preference. He also noted that both Pelosi, of California, and Senate Majority Leader Chuck Schumer of New York come from areas that would benefit from a SALT cap expansion and that they are “important allies to have” during the discussions.

The state and local tax deduction was capped at $10,000 in the 2017 Republican tax overhaul to offset the cost of some of cuts in levies in that package. Democrats say that move targeted taxpayers in high-tax states and have been seeking to roll back the cap since then. Republicans have criticized the effort because most of the benefits of the SALT deduction go to high-earners. Proponents argue that many of those upper-income households qualify as middle class in the high-tax, high-cost areas.

©2021 Bloomberg L.P.