Senate Budget Committee Chairman Bernard Sanders dashed the hopes of congressional Democrats on Tuesday that a generous federal income tax break that mostly benefits blue states will be included in President Biden’s $1.75 trillion budget bill.
Mr. Sanders, a democratic socialist from Vermont, said that any restoration of the State and Local Tax or SALT deduction must be tailored to only the middle class.
“Democratic negotiators are working on a repeal of the SALT deduction cap for up to five years, which would cost $475 billion and give the richest 5% $400 billion in tax cuts,” he said. “As a result, the top 1% would pay lower taxes after [the] passage of the Build Back Better plan than they did after the Trump tax cut in 2017. This is beyond unacceptable.”
The comment came after moderate Democrats, specifically those from high-tax states in the Northeast and West, floated a five-year repeal of the deduction cap for SALT. The deduction allows individuals to write off certain state and local taxes from their federal income taxes.
The fight over SALT further complicates efforts to secure passage of Mr. Biden’s spending plan through a narrowly divided Congress.
Former President Trump’s landmark tax cuts in 2017 capped the deduction to $10,000 per year. It also changed the eligibility criteria, allowing filers to deduct property taxes and state income or sales taxes, but not both.
Moderate Democrats have been angling to restore the tax credit ever since. Some have even threatened to oppose Mr. Biden’s social welfare bill unless it restores SALT.
“We will continue to work with House and Senate leadership to ensure the cap on the SALT deduction is repealed,” said Rep. Josh Gottheimer, a New Jersey Democrat. “No SALT, no deal.”
Mr. Sanders, though, stands firmly opposed to the change. Instead of a full repeal of SALT, Mr. Sanders said he would only support minor changes to the tax credit that only benefits those making less than $400,000 annually.
“The truth is that in high tax states like New York and California, housing is enormously expensive … I think we should deal with that,” he said. “To the degree that it impacts the middle class [and] part of the upper-middle class. But what we should not be doing is exempting, is repealing the SALT for people who own mansions and for billionaires.”
Mr. Sanders further pledged that if moderate House Democrats passed the social welfare bill with an overly generous SALT component, the Senate would strip it from the final package.
“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.”
Since Democrats plan to push the package through in party-line votes using budget reconciliation, a process allowing spending measures to pass the 50-50 Senate by a simple majority, the White House cannot afford to lose Mr. Sanders’ vote.
Mr. Biden can also not afford to lose any support from his party within the House, where Democrats have only a three-seat majority, given widespread GOP opposition. At the moment, nearly two dozen House Democrats have pledged to oppose the reconciliation package unless SALT is included.
“No SALT, no dice,” said Mr. Gottheimer.