Democrats are working on a series of compromises aimed at loosening the restrictions on the state and local tax deduction, or SALT deduction, though some wanted to eliminate the cap entirely, Bloomberg reports.
“An unlimited deduction is dead, and the question now is what kind of limitation,” said former House aide George Callas, who assisted in the writing of the 2017 tax law that imposed a $10,000 cap on the SALT deduction.
While House Democrats from states such as New York and New Jersey want to prioritize the SALT deduction on federal income taxes, party progressives argue that this essentially would amount to a tax cut for the wealthiest Americans. Democrats hope they can reach a compromise that likely will leave the SALT cap, which is set to end in 2025, in place in some form.
“It is really bizarre watching Democrats argue with each other over how many tax breaks to give to rich people,” Len Burman, a fellow at the Urban Institute, a left-leaning think tank, told Bloomberg. “Democrats are really raising the bar on these cynical budget gimmicks.”
Some House Democrats have suggested increasing the SALT cap from $10,000 to $80,000 over the course of the next 10 years before reverting back in 2031, saying that this would increase the amount of money gathered by the government. Senate Democrats have instead floated gradually eliminating the SALT deduction for people who make about $400,000 or more.
“Income limits are tricky in part because there are very wealthy people who don’t have a lot of income,” Rep. Tom Malinowski, D-N.J., told The Hill earlier this week. “Meanwhile, in districts like mine … there are people who may make more than $400,000 a year but who would not be considered wealthy because of the cost of living.”
Malinowski added that “we can’t really have a conversation about alternative proposals until we see how they achieve at least revenue neutrality.”
House Ways and Means Committee Chairman Richard Neal, D-Mass., told reporters last week that negotiations on the issue have proven challenging.
“If you moved like an inch this way, then the suspicion settled in, and if you moved an inch that way, the suspicion settled in,” he said, according to the Hill.