GOP ramps up attacks on SALT deduction provision

Republicans are ramping up attacks on a key tax provision under discussion for President Biden’s social spending package, even as Democrats have yet to reach a consensus among themselves on the issue.

Democrats from high-tax states such as New York and New Jersey want the spending package to undo the $10,000 cap on the state and local tax (SALT) deduction. But some progressives and some moderate Democrats are concerned that rolling back the cap would benefit wealthy Americans.

Republicans, who created the cap in their 2017 tax law, are highlighting the potential impact of a roll-back for high-income households in an effort to prevent the SALT deduction cap from being changed in the social spending bill. Republicans also hope to use the SALT deduction issue against Democrats in the midterm elections.

“This is something that will bring down their Build Back Better [Act], because it was really a blue-state billionaire bailout,” Sen. Chuck Grassley (R-Iowa) said at a news conference on Wednesday.

Sen. Shelley Moore Capito (R-W.Va.) said during the news conference that she plans to offer an amendment to remove any provision to roll back the SALT deduction cap when a version of the spending package comes to the Senate floor.

“I think that that would be well-received,” she said.

Republicans established the $10,000 cap on the SALT deduction in an effort to raise revenue to help offset the cost of tax cuts elsewhere in their 2017 law — which reduced the corporate tax rate from 35 percent to 21 percent and also lowered individual income tax rates. They have continued to defend the cap, saying it helps to prevent the federal tax code from subsidizing states with higher taxes.

But politicians in high-tax, Democratic-leaning states say the cap hurts residents of their jurisdictions who may have high incomes but face high costs of living. They also argue that the cap hurts their states’ abilities to provide robust public services.

Democrats are expected to include some type of change to the SALT deduction cap in their social spending and climate package, given that some key blue-state lawmakers have made the issue a priority. The package is also poised to include spending and tax cuts in areas such as child care, clean energy and health care. 

However, Democrats have yet to agree on exactly how to undo the cap amid concerns from some lawmakers in the party that rolling back the cap would benefit the rich and undercut the notion that the spending package is aimed at helping middle-class families. Lawmakers with concerns range from prominent progressives to moderates from lower-tax jurisdictions.

The version of the spending bill that the House passed last month would raise the cap from $10,000 to $80,000 and have the cap stay at that level until 2030. The cap would then return to $10,000 in 2031.

Senate Democrats have expressed a desire to take a different approach, which would exempt taxpayers under a certain income level from the $10,000 cap, rather than raising the level of the cap, but they are not all in alignment with each other.  

Sen. Bernie Sanders (I-Vt.) has expressed interest in crafting a provision that would exempt households with income under $400,000 and raise federal revenue, while Sen. Bob Menendez (D-N.J.) wants a higher income limit for the exemption and for a proposal to be revenue-neutral. 

A meeting between Sanders, Menendez and other Senate Democrats on the SALT deduction cap on Tuesday did not produce an agreement.

Republicans are drawing more attention to the potential benefits to the wealthy.

Sen. Mike Crapo (Idaho), the top Republican on the Senate Finance Committee, at Wednesday’s event highlighted analyses from think tanks that found that the SALT deduction changes in the House bill would amount to one of the largest portions of the social spending package and would provide the largest tax cuts to high-income households.

Republicans want to block the entirety of Democrats’ social spending package but see the SALT deduction issue as a particular area where Democrats may ultimately take a position that they view favorably.

“I don’t think our critiques are causing the consternation among the Democrats. Maybe we should take more credit. But I think it’s the facts, and the facts are pretty plain, which is that when you raise the cap, you are skewing this toward the wealthiest Americans,” added Sen. Rob Portman (R-Ohio) at Wednesday’s event.

The debate over the SALT deduction cap has implications for next year’s midterm elections.

Democrats made criticisms of the SALT deduction cap a part of their messaging in the 2018 midterm elections, when they flipped a number of affluent, suburban districts. But Republicans think in the upcoming midterms that the SALT deduction issue will play in their favor, particularly in states and districts that aren’t on the coasts.

“The Democrats continue to outdo themselves and show the country just how out of touch they really are,” T.W. Arrighi, a spokesman for the National Republican Senatorial Committee, said in a statement Wednesday. “As Americans struggle with rising costs and supply shortages during the holiday season, Democrats are bickering over how big of a tax cut to give millionaires and billionaires in blue states.” 

A National Republican Congressional Committee poll conducted last month found that more than three-quarters of voters in battleground districts would be less likely to vote for a Democrat that “votes to give an eighty thousand-dollar tax break to wealthy homeowners in New York, New Jersey, and California, a move that would cost hundreds of billions of dollars, and overwhelmingly benefit the wealthy, not the middle class.”

Democrats pushed back on Republican attacks over SALT deduction cap changes, pointing out that the GOP’s 2017 tax law cut taxes for the wealthy.

Menendez on Wednesday called the GOP criticisms “hypocritical” because Republicans’ tax law cut taxes for high-income households.

“What [Republicans] did do is take away from middle-class working families the ability to deduct their state and local property taxes in a way that helps those states, like New Jersey for example, be a state that [contributes] to the federal Treasury,” he added.