WASHINGTON — The exemption from the cap on state and local tax deductions in federal tax returns came a step closer Friday as House Democrats passed their version of the nearly $2 trillion Build Back Better Act for social and climate spending.
The House bill, which raises the cap from $10,000 to $80,000, now goes to a Democrat-controlled Senate that looks poised to allow for the first time since Republicans capped state and local tax deductions in 2017. some form of enlightenment, abbreviated as SALT.
“It just happened because we said, ‘No SALT, no deal,'” Representative Tom Suozzi (D-Glen Cove) told reporters in a zoom call after the House passed the bill.
“It’s a big win, and it’s great for my constituents. It’s great for New York State and it’s great for other states that are in a similar position to New York,” Suozzi said.
Suozzi, who worked with New Jersey Representatives Josh Gottheimer and Mikie Sherrill, recruited dozens of colleagues to leverage the House Democrats’ slim three-vote majority to ensure that the final House version of the Build Back Better Act SALT. limitation would contain.
Now the package goes to the Senate, where the wafer-thin Democrats will use a budgetary process called reconciliation to pass it without any Republican votes.
However, the legislation will undergo changes. Some are expected to be led by moderate Democratic Senators Joe Manchin, of West Virginia, and Kyrsten Sinema, of Arizona, while others will be encouraged by progressives, most notably Senator Bernie Sanders (I-Vt.).
Senate Majority Leader Chuck Schumer (DN.Y.) will oversee the trial, a long-time advocate of federal tax deductions for state and local taxes benefiting New York, New Jersey, California and other states with high income and property taxes.
The biggest benefits of easing the SALT limit would go to the wealthy, who are more likely to itemize their tax returns, have more expensive homes and pay more in state and local taxes, research shows.
And Democrats in the Senate appear to be divided on the issue.
Montana Sen. Jon Tester, for example, said last week that he was “crazy” about easing the SALT limit because it would create a major tax break for Americans earning more than $400,000.
And Sanders has been a serious critic.
“It would be irresponsible for Congress to pass a SALT agreement, which would provide huge tax breaks for the richest people in this country,” Sanders said last week. “On the other hand,” he said, “I think there are a lot of people in this country, middle-class people who do need a little help.”
As an alternative to raising the cap, Sanders and Senator Bob Menendez (DN.J.) have proposed raising the cap only for those with incomes below a certain level — $400,000 in Sanders’ proposal and less than $550,000 in Menendez’s plan.
The top 5% of income earners, who earn more than about $365,000 a year, would reap about 70% of the benefits of the Suozzi-backed plan and about 41% of Sanders’ proposal, researchers at the left-wing Tax Policy Center said. .
But the biggest difference would be the amount of benefits for the top 1% of households earning about $870,000 or more: They would get nearly a third of all benefits under the $80,000 limit, but only about 0.1% below the income limit. of $400,000 from Sanders.
Republicans and critics on the left point out that easing the SALT cap would give the wealthy a huge tax break.
But House Speaker Nancy Pelosi (D-Calif.) dismissed that criticism when asked about it last Thursday when she expressed support for the move to raise the SALT cap to $80,000.
“That’s not about tax cuts for rich people,” Pelosi said. “It’s about serving the American people in our communities where we’ve taken care of our people — education, transportation, health care, all the problems that public service brings to people.”
She continued, “That’s a fight I’ll keep making.”
The fight could take place next month, after the Senate makes changes to the Build Back Better Act package and returns it to the House, possibly including changes to the SALT cap.
Suozzi swore he would negotiate with the Senate while they work it out.
“They should make us all happy,” Suozzi said. “No SALT, no deal.”