Pelosi ‘hopeful’ Democrats can reform SALT tax in Biden infrastructure bill

Under increasing pressure from Democrats in her own ranks, Speaker Nancy Pelosi (D-Calif.) said Thursday that she’s hoping to reform the tax code to help high-income states as part of President Biden’s multitrillion-dollar infrastructure package.

A growing number of Democrats from the nation’s wealthier states, which include New York, New Jersey and Illinois, have warned that they won’t support Biden’s infrastructure bill without the elimination of the current cap on the federal deduction for state and local taxes, known as SALT. 

Pelosi stopped far short of drawing a red line, as those Democrats have done. But she said she’s a “big supporter of their position” and suggested she wants to see that particular tax provision wrapped into Biden’s infrastructure bill, which is expected to feature a series of tax hikes to offset the spending.

“Hopefully we can get it into the bill. I never give up hope for something like that [that] means so much to the American people,” Pelosi said on a press call. 

The Republicans’ 2017 tax reform law imposed a $10,000 ceiling on the SALT benefit, sparking howls from lawmakers in higher-income states, who warned that it would penalize middle-class families, not just the wealthier taxpayers it was intended to target.

Earlier this week, New Jersey Reps. Bill Pascrell (D) and Josh Gottheimer (D) joined Rep. Tom Suozzi (D-N.Y.) in vowing to oppose any tax reform proposals that exclude changes to the SALT cap.

The threat by Democrats to oppose Biden on one of the highest priorities of his first-year agenda could carry massive implications for the fate of the legislation, since Democrats enjoy only a razor-thin majority in the House and Republicans are already lining up against the package over its size and corporate tax increases.

Those conditions lend outsized leverage to Democrats willing to buck the party and make demands, particularly if they band together in numbers high enough to block House passage. 

“No SALT, no deal,” Suozzi told The Hill. 

The battle may prove a political headache for Democrats, who have spent the last three years bashing former President Trump and the Republicans for adopting tax reforms that tilted heavily in favor of the wealthy and heaped trillions of dollars onto the federal debt. And some liberals have cautioned that eliminating the SALT cap would only further both of those trends. 

Still, the high-income states send powerful delegations to Capitol Hill. And Pelosi noted that California is among those heavily impacted by the $10,000 SALT cap, accusing the Republican authors of the 2017 tax law of adopting the “mean-spirited” and “politically targeted” provision to hurt Democratic states disproportionately.

“So I’m sympathetic to their position,” Pelosi said of the Democrats demanding SALT reform. 

“I would say that I would withhold any comment about whether you would vote for a bill or not until you see what the bill is,” she cautioned. “But, again, I share their exuberance about the subject of the SALT tax.”