Democrats are fighting over whether changes to the cap on deductions for state and local taxes will be included in any future iteration of President Joe Biden’s stalled Build Back Better plan.
The Build Back Better legislation appears dead after Democrats failed to wrangle the votes to pass it, but the White House is pushing Congress to pass a slimmed-down bill that would include some of the provisions the administration hoped for.
One possible inclusion that is facing Democratic infighting is a change to the $10,000 cap on SALT deductions, something that has been championed by many Democratic representatives of high-tax states but disliked by more liberal lawmakers because allowing more deductions would mainly benefit the wealthy.
“I’m glad to hear that the SALT provisions are no longer in play for Build Back Better. Democrats need to focus on the struggling working class, not giving more tax breaks to the wealthy,” said Sen. Bernie Sanders, a Vermont socialist, said Tuesday.
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Sen. Bob Menendez openly pushed back against his colleague on social media.
“Less than three months ago, [Sanders] stood next to me and said Trump’s $10,000 SALT cap ‘was a regressive and unfair proposal. And this Congress must rectify it.’ Fast forward to Jan. 2022,” the New Jersey Democrat said on Twitter, adding an image of himself standing beside Sanders with a quote from the latter bashing the $10,000 cap that was imposed by the 2017 Trump tax overhaul.
Less than three months ago, @SenSanders stood next to me and said Trump’s $10,000 SALT cap “was a regressive and unfair proposal. And this Congress must rectify it.”
Fast forward to Jan. 2022…
??? https://t.co/LI5hM7OSh5 pic.twitter.com/pXkBWagJ4n— Senator Bob Menendez (@SenatorMenendez) January 26, 2022
The matter of the SALT cap is a complicated one that has been debated for months within the Democratic caucus. The Build Back Better Act, which passed the House in November but languished in the Senate, would have raised the $10,000 cap to $80,000, a move that would lead to a significant tax cut for high earners in states with high taxes.
The nonpartisan Committee for a Responsible Federal Budget said that increasing the SALT cap to $80,000 through 2025 would end up costing the federal government $275 billion in revenue — a total that is $5 billion more than the next costliest provision in the Build Back Better Act.
Democrats need every single vote they can get in order to pass some version of Build Back Better, and certain Democratic lawmakers in the House maintain that they won’t sign on to any agreement that doesn’t include SALT relief.
By withholding their votes, they threaten to derail other provisions Biden wants in new legislation, such as an expanded child tax credit.
“SALT remains a top priority,” said Democratic Reps. Tom Suozzi of New York, Josh Gottheimer of New Jersey, and Mikie Sherrill on New Jersey said in a joint statement. “We support the president’s agenda, and if there are any efforts that include a change in the tax code, then a SALT fix must be part of it. No SALT, no deal.”
The Democrats’ wiggle room in the House is a mere 10 votes, and Suozzi, Gottheimer, and Sherrill are not the only major supporters of SALT reform. Last April, when Biden’s spending agenda was in its infancy, several lawmakers announced the formation of a “SALT caucus,” composed of 21 Democrats and nine Republicans, with the stated goal of returning the SALT deduction in full.
Even if a change to the SALT cap is included, which is a big “if,” it is very unlikely that it will be a full deduction, given opposition from the leftward flank of the party. If the ceiling were removed, nearly two-thirds of the benefit would flow to the top 1%, according to the Tax Foundation.
“As a result, the top 1% would pay lower taxes after passage of the Build Back Better plan than they did after the Trump tax cut in 2017. This is beyond unacceptable,” Sanders said in early November after reports began circulating that Democratic negotiators had agreed to lift the cap in full.
“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,” he said. “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 did say at the time that he was open to a compromise.
Despite the recent collision on Twitter, he and Menendez floated a compromise proposal that would restore the SALT deduction only for people earning less than $400,000, a move that Sanders said was designed to “make sure the wealthy do not get a tax break.”
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Passing SALT reform, reimposing the expanded child tax credit, and other Build Back Better agenda items are getting tricker as time goes on, given that it is an election year. Biden is hoping to campaign on the passage of some form of watered-down legislation, while Republicans will invariably campaign against the additional federal spending.
Democrats stand to lose both chambers of Congress in November, a prospect that would make passing any meaningful legislation difficult for Biden. A Pew Research Center poll released Tuesday found that Biden’s approval rating has been in decline most of this year. His approval among adults now sits at 41%, down from a high of nearly 60% in April of last year when Pew asked the same question.
