Biden Stiffs Dems Over SALT, Putting Pelosi In Pickle

As we mentioned earlier today, President Biden’s $1.8 trillion proposal to ‘expand the social safety net’ notably omits the removal of a Trump-era cap on the SALT deduction, which allows wealthy taxpayers to deduct state and local taxes from their federal returns.

The deduction – which largely affected the wealthiest Americans – most of whom are Democrats, has become a major sticking point on Capitol Hill, as Democratic lawmakers have been calling for Biden to repeal the 2017 cap instituted by former President Trump as part of his signature tax legislation, which lowered taxes or increased refunds for most Americans.

For high-tax states including Democratic-led California and New York, repealing the cap has been a key priority, with supporters of the repeal arguing that the cap constrains state and local government spending, much of which benefits lower-income residents.

In 2018, four states—New York, Connecticut, Maryland, and New Jersey—banded together to sue the Trump administration over the cap, alleging that it was unconstitutional, unfairly targeted New York and similarly situated states, and interfered in the rights of the states to make their own federal tax decisions. A judge dismissed the suit in 2019, ruling that the cap was not unconstitutionally coercive and that the states hadn’t laid out a convincing case for how the measure meaningfully constrained their decision-making processes. –Epoch Times

Last year, Democrats tried using the pandemic to lobby for lifting the cap on the SALT deduction for 2020 and 2021 as part of a COVID-19 relief package, arguing that people hit hardest by COVID-19 would see relief. More recently, there has been a bipartisan push to repeal the SALT cap – which has included SALT caucus co-chairs Rep. Josh Gottheimer (D-NJ) and Rep. Young Kim (R-CA).

“It is high time that Congress reinstates the State and Local Tax deduction, so we can get more dollars back into the pockets of Iso many struggling families—especially as we recover from the pandemic,” said Gottheimer.

Lawmakers have made multiple appeals to key administration officials, such as Treasury Secretary Janet Yellen, who has said that the SALT cap causes “disparate treatment” among taxpayers and that she would work with Congress to find a solution to address the issue — though she hasn’t endorsed any particular approach.

Marc Gerson, a former tax counsel for the Ways and Means Committee, said Congress is just at the beginning of a very long negotiation, and the demands for a full repeal of the SALT cap are an opening bid. –Bloomberg

Yet, according to a recent study from the Tax Policy Center, repealing the federal cap on SALT deductions would primarily benefit households making over $500,000 per year, while just 1% of the benefit would help those earning $100,000 or less. Meanwhile, repealing the deduction cap would cost the Treasury nearly $89 billion in lost tax revenue for 2021 according to the Joint Committee on Taxation – while lawmakers are seeking a repeal of the cap through at least 2025, when several portions of Trump’s tax laws are set to expire. This, of course, means that Congress would need to find hundreds of billions of dollars to either cut out of spending budgets, or raise through tax hikes.

Pelosi in a pickle

With Biden’s refusal to remove the Trump-era cap, House Speaker Nancy Pelosi now has to shepherd the White House’s plan “through the razor-thin margins in her chamber,” as Bloomberg describes it, as furious Congressional Democrats threaten to derail the spending bill altogether.

“I will be banging my fists onto the table to make New Jersey’s voice heard and do everything in my power to put SALT repeal on the books,” said Rep. Bill Pascrell (D-NJ) in a Wednesday statement hours after the White House released their plan. “I expect certain elements of the proposal to shift as it moves through Congress.”

Pascrell is one of the more than 20 Democrats who have said they won’t support Biden’s infrastructure and social-spending proposals without a restoration of the SALT deduction. That’s more than enough to hold up passage in the House.

In the Senate, Majority Leader Chuck Schumer is himself a lead sponsor on legislation to revive the break. He’ll need to get all 50 of his caucus on board with the final draft of Biden’s plan, besides counting on a tie-breaking vote from Vice President Kamala Harris to move the legislation. –Bloomberg

According to the report, some Democrats have accused Trump of limiting the SALT deduction as a way to punish Democratic areas, and that the cap unjustly harms middle-class households in their districts where the cost of living is high.

Regardless of one’s stance on taxation, it’s almost comical to watch Democrats – the self-proclaimed champions of the downtrodden – fighting so hard for the wealthy.