House and Senate Democrats face mounting pressure to scrap a provision in President Joe Biden’s Build Back Better legislation that would eliminate a GOP-era cap on state and local tax deductions.
A group of Democrats from high-tax states has threatened to vote against the Biden legislation unless it includes language that raises the cap. Still, others in the party fear it will become negative campaign fodder.
Last month, House Democrats passed their version of Biden’s Build Back Better legislation, a social welfare bill, and green energy measures.
But the bill faces new scrutiny in the Senate, where Democrats are increasingly fearful lifting the SALT cap will turn off voters in the critical midterm elections.
Republicans are eagerly touting the provision as a tax cut for the rich and warning the rest of the Democratic spending plan raises taxes on the middle class.
The states that would benefit most from lifting the cap include California, New York, New Jersey, and Pennsylvania, where taxes and housing prices are both very high. “The wealthiest people in the high-tax states are going to benefit from the SALT deduction,” Sen. Thom Tillis, a North Carolina Republican, said.
According to the Committee for a Responsible Federal Budget, lifting the SALT cap through 2025 would cost $285 billion.
According to the Institute on Taxation and Economic Policy, three-fourths of the benefit in the House SALT provision would go to the wealthiest 5%.
Fearing the SALT provision could become politically damaging, Democrats are now scrambling for a way to rewrite the House version so that it is not seen as a benefit to wealthy homeowners.
Senate Budget Committee Committee Chairman Bernie Sanders, a Vermont independent socialist, is no fan of the House SALT cap elimination and is working on a rewrite of the language. "At a time of massive income and wealth inequality, the last thing we should be doing is giving more tax breaks to the very rich,” Sanders said last month in response to the House Build Back Better SALT provision. “Democrats campaigned and won on an agenda that demands that the very wealthy finally pay their fair share, not one that gives them more tax breaks.”
Sanders and other Democrats are discussing a plan to amend the House provision so that those earning more than $475,000 or more would not see an increase in the $10,000 cap, while income earners making between $400,000 and $475,000 would be eligible for some tax relief.
The Senate proposal would cost $29 billion next year, compared to $64 billion for the much broader House proposal.
The deal is not finalized, and Democrats aren’t revealing where the talks stand.
“We’re making some progress," Sanders said last week after a closed-door meeting with fellow Democrats about the provision.
Democrats are racing to pass the bill in the Senate by Christmas, but that goal appears increasingly unlikely as disagreements over the measure pile up.
Democrats control 50 votes in the Senate, which means all party lawmakers must vote for the bill in order for special budgetary rules to be employed that allow them to pass it with 51 votes instead of the usual 60. Vice President Kamala Harris would break the tie.
Party leaders are struggling to win the support of Sen. Joe Manchin, a West Virginia Democrat who sees multiple problems with the bill, including the SALT provision.
Manchin told reporters the provision doesn’t belong in the legislation.
But a provision lifting the cap cannot be excluded if Democrats hope to send the bill to Biden’s desk.
Senate Democrats will have to approve whatever changes are made by the Senate. A group of party lawmakers from California, New York, and New Jersey are threatening to block the Build Back Better legislation if it returns to the House without the SALT provision. They held a press conference featuring support from union members who do not like paying the higher taxes and argued the cap unfairly targets suburban households and will lead to service cuts for communities by hurting government budgets.
“We compromised in the House. We think it’s a good compromise, but we need to have that done in the Senate as well,” Rep. Tom Suozzi, a New York Democrat, said.