Congressional liberals have gone silent as Democrats have moved toward raising the cap on federal tax deductions for paid state and local taxes, a move that would result in large tax cuts for the wealthy.
This week, Senate Democrats paved the way for raising the $10,000 cap on SALT deductions, which was imposed by Republicans in the 2017 Trump tax overhaul, by approving a budget resolution that will allow them to pass a major spending bill without GOP votes. Leaders have said the SALT cap relief would be included in that legislative package.
The idea of raising the SALT cap is strongly supported by representatives of high-tax states that stand to see their finances strained by the loss of the full deduction.
But a number of liberal Democrats oppose raising the cap on the grounds that the bulk of the benefits would accrue to very high-earning households. Enough House Democrats have opposed such tax cuts in the past to make it impossible for Speaker Nancy Pelosi to pass the bill without GOP help if they stood firm.
But the Democrats who have opposed removing the SALT cap did not respond to requests for comment by the Washington Examiner this week.
Sen. Bernie Sanders, a Vermont socialist who heads the budget committee, included “SALT cap relief” in the Democratic budget proposal despite expressing opposition to lifting the cap in the past. In May, Sanders said during an interview with Axios that he did not support efforts to cut the cap and bring back the full SALT deduction.
“It sends a terrible, terrible message when you have Republicans telling us that this is a tax break for the rich,” the former presidential contender said. “In fairness to Schumer and Pelosi, it is hard when you have tiny margins, but you have got to make it clear which side you are on — and you can't be on the side of the wealthy and powerful if you're going to really fight for working families.”
Repealing the SALT cap would disproportionately affect the wealthy. The Tax Policy Center found that only 3% of middle-income households would pay less in taxes if the cap is removed. The Tax Foundation predicts that a full repeal of the SALT deduction cap could reduce federal revenue by $380 billion through 2025.
The issue has made odd bedfellows of Republicans and some Democrats, with the liberal-leaning Institute on Taxation and Economic Policy blasting a repeal as “inequitable.”
ITEP found that if the cap were repealed, two-thirds, or some $67 billion, would flow to white taxpayers who make over $200,000 per year. The report said that a clean removal of the cap would exacerbate wealth and racial divides in the country.
“An uncapped SALT deduction primarily rewards families who simultaneously have high levels of both income and wealth, and it would, therefore, add to the nation’s unconscionable racial income and wealth gaps,” an April report from ITEP reads. “The vast majority of families — regardless of race — would not benefit from SALT cap repeal, and families of color are even less likely to see any tax benefit.”
Democrats last tried to remove the cap in 2019, when they held a robust 34-member majority in the House. During that vote, 16 Democratic lawmakers joined Republicans in voting against it, and it passed 218-206, although it ultimately languished in the then-GOP-controlled Senate. This time around, Democrats’ 34-vote majority has dwindled to just eight, meaning that Pelosi will need every vote she can muster.
The Washington Examiner asked the offices of all of the Democrats still in Congress who voted against the 2019 legislation about their position on the matter of raising the cap, but didn't receive responses.
Progressives and lawmakers in red states were among those who voted against the measure, including Reps. Joaquin Castro of Texas, Alexandria Ocasio-Cortez of New York, Abigail Spanberger of Virginia, Stephanie Murphy of Florida, and Mark Pocan of Wisconsin.
Ocasio-Cortez has called the repeal of the cap “a gift to billionaires” and an “extreme position,” although she said there can be a “conversation” on the policy. Her office did not respond to requests for comment.
Murphy, a centrist, said before the budget resolution was written that repealing the cap “does virtually nothing” for her constituents but hinted at the possibility of finding a “compromise position.”
“But at a time when we are looking for revenues … it’s hard to make the argument to lift this cap because we’re going to have to find a way to pay for that too,” she at a BakerHostetler webinar.
Her office also did not respond when contacted by the Washington Examiner.
Despite criticism that nixing the cap benefits the wealthy, Democrats from high-tax states such as New York are hoping to use the wire-thin majority in the House as leverage to shake up SALT. Two Democrats, Reps. Josh Gottheimer of New Jersey and Tom Suozzi of New York, have been leading the charge to repeal the cap. The former roommates have amassed their SALT caucus composed of more than 30 Republicans and Democrats.
The group sees the cap as a threat to the economic vitality of their constituents, arguing that it harms the middle class and could force the wealthy to pick up and move to lower-tax states because of the high taxes.
“No SALT, no deal” has been a common refrain from Suozzi, who has been nicknamed “Mr. SALT.”
“This group is going to work together to educate people about how the middle class in my district or in many of the districts here is very different from the middle class in other districts in the country,” said Suozzi.
And 33 lawmakers is a significant number given the close divide in the House and the fact that Democrats will need every vote they can get to pass the $3.5 trillion spending package through the reconciliation process.
The prospects for the SALT Caucus brightened when Sanders, who of the most liberal lawmakers on Capitol Hill, included “SALT cap relief” in his budget proposal.
Still, there are measures possible short of full repeal. One member of the SALT caucus, Rep. Bill Pascrell Jr. of New Jersey, told Roll Call last month that he would be willing to negotiate on raising the cap if the appetite for removing it isn’t there.
“I wanted to say I’d set [the cap] to about $25,000. But I’ll settle for [$20,000],” he said.
The move is rubbing salt into the wound for Republicans who were behind the decision to cap the deduction at $10,000 as part of their 2017 tax cuts. Most of the GOP, save a few lawmakers from high-income high-tax states, have blasted the move to increase or abolish the cap as hypocrisy on the part of Democrats.
“Democrats, on one hand, claim the wealthy are not paying their fair share, while at the same time proposing to give millionaires six-figure tax cuts,” said Sen. Chuck Grassley of Iowa after pitching a failed amendment to the package this week that would have stopped changes to the current law.
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Original Author: Zachary Halaschak