A dispute over Donald Trump’s 2017 tax reforms stands in the way of Joe Biden’s $ 2 billion infrastructure proposals, as a growing number of lawmakers on Capitol Hill threaten to vote against any tax and spending plans that don’t reverse a key provision of Trump’s changes.
Thirty-two House members from the Democratic and Republican parties this week formed a “Salt” caucus to rally to a cap on federal tax deductions for state and local taxes, resulting in a higher bill for local taxes. households in states such as New York, New Jersey and California.
More than a dozen New York Democratic lawmakers wrote separately to Nancy Pelosi, the Democratic Speaker of the House, calling the issue “critical.”
“We reserve the right to oppose any tax legislation that does not include a complete repeal of the salt limitation,” they added.
Kirsten Gillibrand, the Democratic senator from New York, said this week that she “fully supports” the abolition of the salt cap, and has not ruled out voting against a bill that does not include politics, saying, “We’ll see what happens. “
Their threats carry significant weight at a time when Democrats control the House of Representatives by a margin of just six votes and the Senate is split, 50-50, between the parties. Biden will need the support of both houses of Congress if he is to implement his ambitious $ 2 billion infrastructure plan, which he intends to pay for in large part with a tax rate hike. companies.
Pelosi, whose congressional district spans most of San Francisco, and Chuck Schumer, the top Senate Democrat who represents New York, have both indicated their support for removing the cap.
But removing the threshold would leave Biden, Pelosi and Schumer exposed to accusations of hypocrisy, given that such a move would amount to tax relief for wealthier Americans at a time when the White House insists the it focuses on those most in need. Removing the cap would also come at a high cost, driving up the price of an already unprecedented spending proposal.
The Congressional Joint Committee on Taxation estimated last year that removing the cap in 2019 alone would have reduced federal revenues by about $ 77 billion.
Jen Psaki, the White House press secretary, pointed out Thursday that Biden had not included the elimination of the salt cap in his infrastructure proposal. But she added: “We understand that there are a number of members who feel strongly convinced.”
“There would have to be a discussion of how it would be paid, which would be taken out instead,” she said. “Then there’s a sort of discussion about what’s most important to achieving our overarching goals.”
Before Trump implemented his own sweeping tax reforms in 2017, households could deduct state and local property taxes from their federal income tax. But Trump capped those annual deductions at $ 10,000, to an extent that hit homeowners in states with high local and state property taxes, like New York, New Jersey and California.
Critics accused the former president of targeting people in “blue” states who tend to vote Democrats; The allies have insisted the White House must increase its revenue in order to pay for the generous tax breaks given to many individuals and businesses.
This time around, the deduction debate has crossed party lines. Just as Democrats and Republicans lined up to oppose the cap, another group of lawmakers from both parties said they were against its elimination.
Progressive New York MP Alexandria Ocasio-Cortez said lawmakers should not “hold infrastructure hostage” for a repeal of tax changes.
“Personally, I cannot stress how much I think this is a gift for the rich,” she added.
Pat Toomey, Republican Senator from Pennsylvania, said restoring the deduction “would once again force low and middle income people to subsidize wealthy people in high tax states and municipalities.”
According to the Tax Policy Center, a joint venture of the non-partisan Urban Institute and the Brookings Institution, raising the cap would be a major boon to the wealthy, with 96% of the profits going to the top quintile of wage earners. More than half – 57 percent – would benefit the richest 1 percent, according to their analysis.
But lawmakers in the newly formed Salt caucus insist lifting the cap would help middle-class families as well.
“There is a misconception that the salt deduction does not help middle class families. But in high cost of living areas like my district, Salt is actually making a crucial difference in helping to make ends meet for our middle class residents like teachers and law enforcement officers, who depend on it. this deduction to pay for the high cost of living in our area, ”said Mikie Sherrill, member of the New Jersey Democratic House.
Andrew Garbarino, a Republican from New York, agreed.
“The Salt Hat penalizes working class islanders on Long Island,” he said. “From firefighters and police officers, to teachers, nurses and small business owners, every day I hear people talk about the crushing blow the Salt Cap has dealt them.”