Democrats weighing changes to limit on state and local taxes deduction

Representative Tom Suozzi, DNY, speaks during a news conference announcing the state and local tax (SALT) rally outside the US Capitol on April 15, 2021.

Sarah Selbiger | Bloomberg | Getty Images

President Joe Biden released a framework for his $1.75 trillion spending package on Thursday. And although it hasn’t proposed changes to the $10,000 cap on the federal deduction for state and local taxes, known as SALT, some lawmakers are still pushing for the last-minute addition.

said Howard Glickman, senior fellow at the Brookings Center for Urban Tax Policy.

The current limit prevents Americans who itemize deductions from writing off more than $10,000 in property and income taxes on their federal returns.

It’s been a problem in high-tax states like New York, New Jersey and California since former President Donald Trump added the cap as part of his 2017 tax reform.

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The SALT deduction limit has been a sticking point for some lawmakers in these states, threatening to torpedo the Democrats’ social plan and climate change plan. However, many are still fighting for relief.

“No salt, no deal!” chirp Rep. Tom Suozzi, DNY, is a longtime supporter of repealing the SALT cover. “I’m sure it will be part of the final deal.”

Another advocate, Representative Josh Gottheimer, expressed a similar level of optimism about the changes.

“I think, based on every conversation I’ve had with the leadership, my colleagues in the Senate and the White House, that SALT will be in the bill,” he said. They know they don’t have the votes without it.”

What is still possible

“Obviously, they’re not going to permanently remove SALT’s cap,” Gilkman said. “It’s way too expensive.”

The maximum deduction fetched $77.4 billion during its first year, according to the Joint Committee on Taxes, and a complete repeal for 2021 could cost up to $88.7 billion, and more in coming years.

However, Democrats need the support of nearly every member of the House of Representatives and every Democratic senator to pass their spending plan.

They have to find some way to please the handful of blue-state Democrats who really made this their number one issue.

Howard Gilkman

Senior fellow at the Urban-Brookings Tax Policy Center

Another option, raising the cap on households below a certain income threshold, might also be possible, Gilkman said, explaining that the provision could still be modified “in an infinite number of ways.”

However, opponents say the changes may primarily help wealthier families, with more than 96% of benefits flowing to the top 20% of earners, according to the Tax Policy Center.

“The problem Democrats have in eliminating the SALT cap deduction is that it sounds awful,” Gilkman said, particularly as lawmakers scale back paid family leave plans and other programs for low-income families.

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