Moderate Democrats are threatening to sink President Biden’s $1.75 trillion social welfare and climate bill unless he restores a federal income tax break that mostly benefits blue states.
The lawmakers, who represent high-tax states in the Northeast and the West, are demanding the bill include State and Local Tax or SALT deductions.
“No SALT, no dice,” said Rep. Josh Gottheimer, a leading moderate Democrat from New Jersey. “I am confident that the State and Local Tax deduction will be part of the final reconciliation package — to support so many middle-class New Jersey families who deserve tax relief.”
SALT allows individuals to write off certain taxes they pay to state and local governments. It once provided significant tax relief in states like New York and California, where the local tax burden is heavy.
The blue-state tax break was in the original $3.5 trillion package. It got dropped in Mr. Biden’s whittled-down $1.75 trillion version that he offered up Thursday in a last-ditch effort to save his floundering economic agenda.
“I’ve learned a long time to say no and absolutes, but I cannot imagine that this can get all the votes necessary without some SALT,” said Sen. Robert Menedez, a New Jersey Democrat. “The framework is not a final product as far as I’m concerned.”
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.
The cut enraged lawmakers and governors from high-taxed blue states, who said it amounted to a penalty on their constituents.
Both the nonpartisan Tax Foundation and the liberal-leaning Brookings Institution say the SALT deduction is a giveaway to the wealthy.
Since Democrats are planning to push the package through Congress along party lines using budget reconciliation, a process allowing spending measures to pass the 50-50 Senate by a simple majority, Mr. Biden cannot afford any disunity.
House Ways and Means Committee Chairman Richard Neal, a Massachusetts Democrat, has pledged to find a solution.
“Something is going to be done in SALT,” said Mr. Neal. “I indicated that a long time ago.”