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Hike in SALT cap heads to U.S. Senate

Speaker of the House Nancy Pelosi (D-Calif.) looks

Speaker of the House Nancy Pelosi (D-Calif.) looks on as House Democrats react to passage of the Build Back Better Act at the U.S. Capitol on Nov. 19, 2021. Credit: Getty Images/Anna Moneymaker

WASHINGTON — Relief for the cap on state and local tax deductions in federal tax filings moved a step closer Friday when House Democrats passed their version of the nearly $2 trillion Build Back Better Act for social and climate spending.

The House bill, which raises the cap from $10,000 to $80,000, now goes to a Democrat-controlled Senate that appears ready to pass some form of relief for the first time since Republicans in 2017 limited deductions for state and local taxes, shorthanded as SALT.

"It only happened because we said, ‘No SALT, no deal,’" Rep. Tom Suozzi (D-Glen Cove) told reporters in a zoom call after the House approved the bill.

"It's a major victory, and it's great for my constituents. It’s great for the state of New York, and it's great for other states that are in a similar position to New York," Suozzi said.

Suozzi, working with New Jersey Reps. Josh Gottheimer and Mikie Sherrill, recruited scores of colleagues to leverage the House Democrats’ slim three-vote majority to ensure the final House version of the Build Back Better Act would include SALT cap relief.

Now the package goes to the Senate, where Democrats with their razor-thin majority will use a budgetary procedure called reconciliation to pass it without any Republican votes.

Still, the legislation will undergo changes. Some are expected to be driven by moderate Democratic senators Joe Manchin, of West Virginia, and Kyrsten Sinema, of Arizona, with others pushed by progressives, particularly Sen. Bernie Sanders (I-Vt.).

Overseeing the process will be Senate Majority Leader Chuck Schumer (D-N.Y.), a longtime defender of federal tax deductions for state and local taxes that benefit New York, New Jersey, California and other states with high income and property taxes.

The biggest benefits of easing the SALT cap would go to the wealthy, who more often itemize on their tax filings, have more expensive homes and pay more in state and local taxes, research shows.

And Senate Democrats appear to be divided on the issue.

Montana Sen. Jon Tester, for instance, said last week he was "crazy about" easing the SALT cap because it would give a big tax break to Americans making more than $400,000.

And Sanders has been a severe critic.

"It would be irresponsible for Congress to pass a SALT agreement, which gave massive tax breaks to the wealthiest people in this country," Sanders said last week. "On the other hand," he said, "I think that there are many people around this country, middle class people who do need some help."

As an alternative to raising the cap, Sanders and Sen. Bob Menendez (D-N.J.) have proposed lifting the cap only for those with incomes under a certain level — $400,000 in Sanders’ proposal and under $550,000 in Menendez’s plan.

The top 5% of income earners, who make more than about $365,000 a year, would reap about 70% of the benefits of the Suozzi-backed plan and about 41% of the Sanders’ proposal, researchers at the left-leaning Tax Policy Center said.

But the biggest difference would be the amount of benefit for the top 1% of households that make about $870,000 or more: They would get nearly a third of all benefits under the $80,000 cap, but only about .1% under Sanders' $400,000 income cutoff.

Republicans and critics on the left point out that easing the SALT cap gives a huge tax break to the rich.

But House Speaker Nancy Pelosi (D-Calif.) rejected that critique when asked about it last Thursday as she declared her support for the measure to raise the SALT cap to $80,000.

"That's not about tax cuts for wealthy people," said Pelosi. "It's about services for the American people in our communities where we have taken care of our people — education, transportation, health care, all of the issues that public service brings to people."

She continued: "That is a fight that I will continue to make."

The fight could come next month, after the Senate makes changes to the Build Back Better Act package and sends it back to the House, possibly including changes to the SALT cap.

Suozzi vowed he would negotiate with the Senate as they work it over.

"They have to make us all happy," Suozzi said. "No SALT, no deal."

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