SALT deduction in Democrats' spending bill would slash taxes for rich Americans by $200B: analysis

Some Democrats look into SALT tax deductions for $3.5 trillion spending bill

Congressional correspondent Chad Pergram has the latest on the bill on ‘Cavuto: Coast to Coast’

Democrats are angling to repeal a Trump-era limit on state and local tax deductions as part of President Biden's signature spending plan, but a new analysis shows how the bulk of the proposal would benefit wealthy Americans.

The so-called SALT deduction cap, which is poised to sunset in 2026, limits the amount of state and local taxes that Americans can deduct from their federal taxes to $10,000. Centrist Democrats have been pushing for months to include a full repeal in the president's $1.75 trillion "Build Back Better" plan, but have faced opposition from left-wing lawmakers.  

Under the latest proposal currently being considered by the House Rules Committee, the deduction cap would rise from $10,000 to $72,500 for five years (it would be retroactive to 2021). The measure would then extend the cap through 2031. 

But findings published by the Committee for a Responsible Federal Budget, a non-partisan organization, show that the temporary increase would cost about $300 billion through 2025 – with $240 billion of that going toward those who make more than $200,000 a year.

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"Though this increase in the SALT deduction cap would be less costly than full repeal, it would still cost more than almost any other part of Build Back Better with just the child care subsidies and the combined costs of all clean energy tax credits costing more," the analysis said. "The benefits would also accrue disproportionately to high earners."

Middle-class Americans would receive an average tax cut of roughly $20 per year, the analysis shows, but the highest earners would see an average tax cut of more than $23,000 from this provision.

A separate analysis conducted by the Tax Policy Center shows that households earning at least seven figures a year would receive the majority of the benefits. About 25% of the benefits would go to the top 0.1% of U.S. households, which would receive an average tax cut of $145,000, while 57% would benefit the top 1%, which would see an average cut of $33,100.  

"The cap on the SALT deduction remains a punishing blow to our home states of New York and New Jersey as we work to recover from the pandemic and get our economies on strong footing and our constituents back to work," Reps. Tom Suozzi of New York and Josh Gottheimer and Mikie Sherrill of New Jersey in a statement last week.

"We will continue to work with House and Senate leadership to ensure the cap on the SALT deduction is repealed. No SALT, no deal. No SALT, no dice," the lawmakers added. 

But temporarily eliminating the deduction limit would require Democrats to vote for a policy that disproportionately benefits wealthy Americans living in blue coastal states. Sen. Bernie Sanders, I-Vt., blasted reports that a SALT repeal may be included in the family and climate spending plan, calling it "unacceptable."

"At a time of massive income and wealth inequality, the last thing we should be doing is giving more tax breaks to the very rich. Democrats campaigned and won on an agenda that demands that the very wealthy finally pay their fair share, not one that gives them more tax breaks," Sanders said in a statement. "I am open to a compromise approach, which protects the middle class in high-tax states. I will not support more tax breaks for billionaires." 

With a slimmest possible 50-50 Senate majority, it would be tenable for Sanders to sink a spending package that includes a full SALT repeal. 

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House Ways and Means Committee Chairman Richard Neal, D-Mass., told reporters Tuesday that discussions on the deduction cap are ongoing.

Biden did not include a SALT repeal in the framework that he unveiled last week, but the White House has previously said it's open to eliminating the deduction cap.

"It is not a revenue raiser and so it would add costs, and potentially significantly, to a package," White House press secretary told reporters over the summer. "There'd have to be a discussion about how that would be paid for what would be taken out instead. And then there's sort of a discussion of what's most important to achieving our overarching objectives."

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