A cadre of vulnerable House Democrats has threatened a revolt if President Biden‘s $3.5 trillion social welfare package does not restore a federal income tax break that mostly benefits blue states.
The lawmakers, who represent states in the Northeast and the West with high state taxes, said on Monday they will vote against the bill unless it restores State and Local Tax, or SALT, deductions.
“I have been consistent for six months: No SALT, no deal,” said Rep. Tom Suozzi, New York Democrat.
The SALT deduction 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.
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.
Opponents of SALT argue that it delivers a huge federal subsidy to high-tax states and local governments.
The cut enraged lawmakers and governors from high-taxed blue states, who said it amounted to a penalty on their constituents.
“More than 50% of families in [my district] took the SALT deduction before it was capped in 2017,” said Rep. Miki Sherrill, a New Jersey Democrat. “Let’s keep our promises to them and families across the country who have been unfairly doubled taxed since then.”
Despite the rhetoric, both the nonpartisan Tax Foundation and the liberal-leaning Brookings Institution say the SALT deduction is a giveaway to the wealthy.
“Households making $1 million or more a year would receive half the benefit of repealing the $10,000 federal cap on the state and local tax (SALT) deduction,” a study by the Urban-Brookings joint Tax Policy Center found. “Seventy percent of the benefit would go to those making $500,000 or more.”
The study further found that 96% of middle-income households would get no tax reduction at all by restoring SALT. On the other hand, nearly 93% of households making more than a million dollars annually would receive a tax cut averaging $48,000.
That fact has even caused a rift to form among Democrats. It is evident along both geographic and ideological lines.
Champions of the deduction, like Mr. Suozzi and Mrs. Sherrill, are somewhat moderate in outlook. Democratic opponents, including Rep. Alexandria Ocasio-Cortez of New Tork, tend to be members that identify as far-left or progressive.
“Personally, I can’t stress how much I believe [SALT] is a giveaway to the rich,” Ms. Ocasio-Cortez said earlier this year. “There’s a conversation to be had, I think, about the cap itself and at what level it’s appropriate and where we can help families that are really deeply impacted.”
To date, Mr. Biden has sided with the progressives by not prioritizing the deduction in his $3.5 trillion spending package.
This was evident on Monday when the House Ways and Means Committee did not include SALT among the tax changes it hopes to include in the package.
After the SALT threat, Ways and Means Committee Chairman Richard Neal said he was “committed to enacting a law that will include meaningful SALT relief,” but stopped short of promising it would be included within the $3.5 trillion bill.
“We continue to work among our colleagues and the Senate to undo the short-sighted capping of SALT by Republicans,” Mr. Neal, a Massachusetts Democrat, said in a joint statement with other committee members.
Defection from moderates such as Mr. Suozzi and Mrs. Sherrill could derail the bill, which is the cornerstone of Mr. Biden‘s domestic agenda.
Democrats are pitching the spending plan to voters as “human infrastructure.” They suggest the package complements the $1.2 trillion bipartisan infrastructure bill that focuses on roads, bridges and airport projects. The Senate passed the smaller legislation last month.
The bigger bill amounts to a wish list of liberal priorities such as proposals for climate change, amnesty for illegal immigrants, tuition-free community college and expanded health care.
The package faces universal Republican opposition in Congress. That means that House Speaker Nancy Pelosi, a California Democrat, can only suffer three defections in the narrowly divided chamber to get the bill passed.