Several moderate Democrats, including several from tax-paying states such as New York and New Jersey–have protested against the deduction cap passed by the former president’s Tax Cuts and Jobs Act in 2017. They have also announced that they will not be a part of any spending plan that does not restore the full deduction of local and state taxes.
While Democrats have also been discussing expanding rules for taxation of investments and a tax for billionaires’ not realized capital gains, the CRFB estimates that possible changes would increase taxes for the top-earning 5% of Americans to about $50 billion by 2023.
This would mean an estimated tax cut of $20 billion for Americans who are in the top 5percent of households due to the SALT caps being repealed, and around 10 billion of it going to the most wealthy one percent of households, according to the CRFB discovered.
House Ways and Means Chair Richard Neal (D-Mass.) said Democrats are “thinking about” suspending the limit of $10,000 for two years. On Monday, Rep. Bill Pascrell (D-N.J.), who met President Joe Biden, stated that the repeal is an “everyday subject” in negotiations.
“If lawmakers truly intend to raise taxes for high earners, SALT cap repeal makes that goal much more of a challenge,” the CRFB stated on Tuesday.
Trump’s tax reform plan for 2017 that included the SALT deduction’s limit of $10,000 – enacted to fund Republicans’ tax cuts – was approved to run until 2025. After that, it’s expected to return to a complete tax break. However, many Democrats have since predicated their vote for the plan’s social spending on the removal of the cap, with lawmakers from high-tax states saying that the cap has enticed Americans to relocate to states that have low tax rates. “No SALT, no deal,” Rep. Tom Suozzi (D-N.Y.) stated to journalists on Tuesday. In October, Suozzi declared that his position was “completely opposed” to anything other than a complete repeal, saying that lifting the limit could “help a lot of people” in his district; however, it “wouldn’t address the policy issue, which is that people are leaving our states.”
Democrats haven’t decided when they’ll reveal the details of their proposed spending plan. However, it’s likely to be a significant amount lower than the $3.5 trillion cost announced earlier in the year, primarily due to the opposition of moderate party members. For instance, Sen. Joe Manchin (D-W.V. ) has always said he prefers the $1.5 trillion package. However, on Tuesday said that he might be willing to negotiate a higher. Lawmakers are working to reach a consensus on the deal before Biden leaves for Europe this Thursday.