(Bloomberg) — House Democrats agitating to lift the cap on the state and local income tax deduction are enlisting teachers, firefighters and other union members to demonstrate the controversial curb's effect on workers in high-tax, heavily unionized states like New York and New Jersey.
“The bottom line is the SALT cap is anti-union. The states that are most affected by the SALT cap are states that have the highest levels of union membership in our country,” Representative Tom Suozzi, a New York Democrat, said at a news conference Wednesday. “Other states that are not affected by it are often anti-union.”
Curbing the state and local tax, or SALT, deduction has “chilled the investment” in education, health care and public sanitation, said Randi Weingarten, president of the American Federation of Teachers. “We need to recreate the incentive to have the state and localities provide these services.”
The show of support from union members comes as moderate and progressive Democrats move closer to a compromise on how to address expanding the SALT deduction later this year in legislation that advances President Joe Biden’s $4 trillion economic plan. The tax break was capped at $10,000 in the 2017 tax law passed under then-President Donald Trump. Since then, Democrats representing high-tax states have been seeking a repeal.
Senate Budget Committee Chair Bernie Sanders on Tuesday released a draft outline of a proposal that included $120 billion in SALT relief. That wouldn’t permanently repeal the $10,000 cap for all taxpayers, but could increase the amount some taxpayers are allowed to write-off. A complete repeal would cost about $385 billion, according to an estimate from Suozzi, who is sponsoring a bill to eliminate the cap.
“It’s a step in the right direction, it’s a recognition that there should be relief,” Senator Robert Menendez, a New Jersey Democrat, said of Sanders’s plan on Tuesday. He said he’s pressing for more.
Targeted relief could bridge the gap between many Democrats representing high-tax states who have made a priority of expanding the tax break and progressives who want to limit how much it benefits the wealthy. More than 20 Democrats have said they would withhold support for Biden’s economic agenda if SALT is not addressed.
Progressives have said they won’t support a complete repeal of the $10,000 limit, with Representative Alexandria Ocasio-Cortez calling full repeal “a gift to billionaires.”
Managing the politics of this tax break has been a challenge for Democrats, who have many members who were able to oust Republicans in 2018 over anger that the GOP law had limited a tax break claimed by many taxpayers in high-tax states like New York, New Jersey and California. Those Democrats say addressing SALT is critical for them to maintain a House majority.
However, the SALT deduction largely benefits high earners, with more than 50% of the benefit of expanding the tax break flowing to households earning $1 million or more, according to the non-partisan Joint Committee on Taxation. Republicans have said that Democrats are seeking to give wealthy taxpayers a backdoor tax cut with their proposed expansion, a criticism Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat, rejects.
“If there was any real interest in saying the wealthy should pay their fair share, they would be working with me and others on our proposals and they’re not,” Wyden said. “You can see through the motives here pretty easily.”
The White House left out any mention of the tax write-off in its proposals and left it up to lawmakers to figure out a compromise that would offset the cost of a more generous deduction.
Democrats pushing for SALT relief have already begun to acknowledge that they may have to settle for raising the $10,000 limitation, as opposed to making all state and local levies fully deductible.
“I know we may not get the full relief. I know that,” Representative Bill Pascrell, a New Jersey Democrat, told Treasury Secretary Janet Yellen at a hearing last week. “But the administration’s silence on this makes my constituents worry.”
