SALT Cap Relief Faces Setback

President Joe Biden recently conceded that lawmakers will need to scale back the economic agenda to get it enacted. This means that Democrats are now at risk of settling for a less generous expansion of the state and local tax deduction than they previously hoped. In a closed-door meeting with House Democrats, Biden said the cost of the tax-and-social-spending package could potentially end up as a range around $2 trillion, down from a previously planned $3.5 trillion top-line figure. this means lawmakers will likely have to decrease the cost of nearly every spending program and tax credit in the legislation, including a planned increase in the state and local tax, or SALT, write-off.

The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper, estimates that a single-year repeal would cost nearly $89 billion, or $178 billion for two years. Democrats advocating for a bigger SALT deduction had been pushing for a two-year repeal of the $10,000 cap on the tax break. This costly tax break that largely benefits high earners in New York, California and New Jersey is likely to pit lawmakers in both chambers who want to repeal the cap against progressives who are advocating to keep their preferred programs in the bill, including free community college tuition and funds for childcare and climate-related spending.

Negotiations loom. Representative Jimmy Gomez believes that it’s likely that SALT changes will be in the final bill, but lawmakers must negotiate the broader spending totals to figure out how much money can be spent on the move. With Biden’s comments to Democrats to greatly reduce the amount of spending on education, climate programs and health care in the package, Democrats set off a race to figure out how to salvage their preferred proposals.Some options for scaled-back SALT-cap changes include repealing the $10,000 cap for a single year instead of two, raising the deduction limit, or putting income restrictions on who can claim the write-off.

Representative Tom Suozzi, leader of the effort to repeal the SALT cap, believes that Biden’s tax and spending bill will pass with a SALT-cap repeal embedded within.

House Ways and Means Chairman Richard Neal has been responsible for finding a solution that satisfies both the SALT-break advocates and the progressives. Though he is still working on the specifics, Neal pledges to include SALT changes in a final bill.

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