SALT Deductions Hiked To $80,000 In Victory For Moderate Dems

Democrats in the House of Representatives cut a new deal to raise the cap on state and local tax deductions in their party’s proposed $1.85 trillion spending bill. Its inclusion represents a victory for moderate Democrats, who balked at negotiations on the bill without addressing the SALT caps.

In an amendment to the bill revealed on Thursday night, the cap would be boosted to $80,000 from $10,000 a year through 2030, and the $10,000 limit would return in 2031. The original cap was included in former President Donald Trump's 2017 tax bill and was vigorously opposed by Republican and Democratic members of Congress from districts in the Northeast, where high income residents complained about the move.

In a joint statement, Reps. Josh Gottheimer, D-N.J., Tom Suozzi, D-N.Y., and Mikie Sherrill, D-N.J., praised the decision to boost the SALT caps as a win for middle-class households in their home districts and pledged to continue working towards the implementation of President Joe Biden's Build Back Better agenda.

"We have been fighting this unfair, targeted tax since its inception in 2017," the three Democrats wrote in their remarks. "This fix will put money back in the pockets of hardworking, middle-class families in our districts and help ensure that our local communities can continue making the investments that we need."

Progressive Democrats and Republicans found themselves in rare alignment in opposing the repeal of the SALT caps. Republicans argue that the deductions were providing what they consider an unfair subsidy to wealthy states like New York whereas progressives say the benefits of these deductions are eaten up by only the wealthiest in the states.

According to the nonpartisan Tax Policy Center, the top 20% of taxpayers may receive more than 96% of the benefit of a SALT cap repeal and the top 1% would see about 54% of the benefit.

At the very least, accommodating the Northeastern Democrats with the SALT boost paves the way for further negotiations on the party’s spending plans. Several, including Suozzi, previously threatened to scuttle talks on both bills if the SALT deductions were not raised. Any defection would be critically dangerous for Democrats, given their slim margins in the House.