SALT change on ice in the Senate

A rollback of the cap on the state and local tax (SALT) deduction is on ice after Sen. Joe Manchin (D-W.Va.) raised broader objections to President Biden’s social spending and climate package. 

Democrats from blue states such as New York and New Jersey have been pushing to include a rollback of the SALT deduction cap in the spending package, though lawmakers have yet to reach an agreement on what such a provision would look like. 

But Manchin last month said he opposes the spending bill, expressing concerns about inflation and the national debt.  

While Democrats are hoping to revise the package so Manchin will support it, that effort will take time and may not end up being successful. 

And although Manchin has said little publicly about the SALT issue, there are moderate and progressive senators who have raised concerns that changes to the cap will benefit the wealthy, making it unclear what type of provision on the topic can get consensus among Democrats. 

Ben Ritz, director of the Center for Funding America’s Future at the Progressive Policy Institute, said an agreement on changes to the SALT deduction cap is likely to come only after Democrats reach a bigger agreement with Manchin on the spending package. 

“SALT’s going to be one of the last things they figure out,” he said. 

Republicans’ 2017 tax cut law created a $10,000 cap on the SALT deduction in an effort to raise revenue to help pay for tax cuts elsewhere in the measure. Many Democrats from high-tax states have railed against the cap, arguing that it hurts their residents as well as their states’ abilities to provide public services. 

A group of Democrats from high-tax states has demanded that the SALT deduction cap be eased as part of Biden’s spending package, known as the Build Back Better Act, which also includes items such as universal pre-K, an expansion of ObamaCare and clean energy tax credits. The House passed a version of the package in November that would raise the cap from $10,000 to $80,000. 

But a number of Democratic senators have criticized the House provision on the SALT deduction, arguing that it would largely benefit high-income households. Senators instead were looking at creating an exemption from the $10,000 cap for taxpayers under a certain income level, though they thus far have not reached a deal on the details. 

Manchin has thrown a wrench in efforts not only to roll back the SALT deduction cap but also to pass any version of the spending package. The West Virginia senator said last month that he was a “no” on the package and on Tuesday said there were presently “no negotiations” going on about the measure. Every Democratic senator will need to vote for a version of the spending package in order for it to pass in the chamber. 

It’s unclear when, if ever, Manchin will agree to support any version of the package. The plan will likely need to undergo significant revisions to gain the backing of Manchin, who has argued that other Democrats are masking its true cost by making some of the programs in the bill temporary. Senate Democrats are expected to focus next week on voting rights and filibuster changes rather than the spending package. 

Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, said it’s unlikely that there would be another legislative vehicle for the SALT deduction cap this year outside the Build Back Better Act. He said a provision on SALT would need to be a part of legislation that also raises taxes on the wealthy. 

“It seems that this is the only ride,” he said. 

Manchin hasn’t spoken out about whether he supports or opposes changes to the SALT deduction cap. But some tax and budget experts argue that rolling back the SALT deduction cap is inconsistent with the West Virginia senator’s priorities for the Build Back Better Act. 

Ritz said that West Virginia is unlikely to benefit much from undoing the cap and that Manchin would likely view the way the House paid for its SALT deduction provision as a budget gimmick. 

“By every measure, it’s not a policy that Joe Manchin should support,” he said. 

Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, said that rolling back the SALT deduction cap was expected to be “the second most inflationary part of the bill in the near term” — behind an extension of the expanded child tax credit, which Manchin has given as one of his biggest areas of concern. 

Nonetheless, some type of SALT deduction changes could still make it into a bill if legislation eventually comes to fruition in the Senate. Senate Majority Leader Charles Schumer (D-N.Y.) and House Speaker Nancy Pelosi (D-Calif.) are both from states where the SALT deduction cap is a key issue. 

“I think it’s inevitable there’s going to be some SALT fix in the bill,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, though he said a change would likely be smaller than the provision in the House bill. 

Supporters of rolling back the cap say they are continuing to fight for a provision on the topic. 

“The majority of Democrats remain committed to addressing the most pressing issues facing working families and I continue to be laser-focused on providing tax relief to working families crushed by Republicans’ $10,000 SALT deduction cap,” Sen. Bob Menendez (D-N.J.) said in a statement provided to The Hill.  

“The fact of the matter is that having a historically slim majority in the Senate, means needing to forge consensus amongst our entire caucus to be able to take the Build Back Better Act through the finish line,” Menendez added. “I am confident we will find a way to continue delivering transformational policies like those we passed last year.” 

Advocates of undoing the SALT deduction cap in the House say they intend to work with senators on the matter. 

“I will work with my Senate colleagues to help bring everyone back to the table,” Rep. Thomas Suozzi (D-N.Y.) said in a statement. “We must get this done.”