Progressives divided over efforts to repeal SALT cap

Liberal groups and progressives in Congress are pushing back on efforts by Democrats from high-tax states to repeal the state and local tax (SALT) deduction cap, posing a challenge as the party tries to build consensus on President Biden’s infrastructure package.

While some progressive lawmakers from states such as New York, New Jersey and California are calling for repeal of the cap to be included in the $2.3 trillion infrastructure legislation, others say it shouldn’t be a top priority because repealing the $10,000 limit would largely benefit high-income households. Outside groups are also pressuring Democrats to keep a repeal out of infrastructure.

The divisions risk creating a hurdle to passing an infrastructure bill given the slim Democratic majority in the House. Since Republicans aren’t expected to support Biden’s spending plan, Democrats will need to craft legislation backed by nearly every member of their caucus.

“There are members of Congress on both sides of this issue whose votes are equally important,” said Jorge Castro, a former congressional tax aide for Democrats and later a senior IRS official.

“The margins in Congress are very slim, and the Biden administration and congressional leadership, they don’t have any votes to spare,” said Castro, who now works on tax law at the firm Miller & Chevalier.

Biden’s infrastructure plan does not include repeal of the SALT cap. An increasing number of House Democrats from high-tax states are urging the president and House leadership to include a repeal in the eventual bill. Some lawmakers have gone as far to threaten to oppose infrastructure legislation that doesn’t address the SALT deduction.

Lawmakers supporting repeal of the SALT cap argue that the $10,000 limit, which was created by former President Trump’s 2017 tax law, disproportionately hurts their states and residents and that repealing the cap would help their states recover from the coronavirus pandemic.

Repeal proponents include both moderates and progressives from high-tax states. A letter on the topic from nearly all of California’s House Democrats last week was signed by progressive Rep. Katie Porter, while a separate letter from most New York Democrats was signed by progressive Reps. Mondaire Jones and Jamaal Bowman. All three lawmakers represent districts where the average household income exceeds $100,000, according to Census Bureau data.

Bowman said in a statement to The Hill that many of his constituents have told him that repealing the cap is important to them, especially in light of the pandemic-related downturn.

“While it is true that a repeal of the cap would benefit wealthy Americans, the benefits are not exclusive to the wealthy, and we want to be responsive to the needs and priorities of our constituents, which includes first-time homeowners and homeowners of color,” he said. “For this portion of SALT filers, repealing the cap can present a material opportunity to disrupt intergenerational wealth gaps.”

Bowman also noted that he has sponsored Sen. Elizabeth Warren’s (D-Mass.) bill to create a wealth tax, and he is planning to announce additional tax legislation in the future. He added that he strongly wants repeal of the SALT deduction cap to be in infrastructure legislation but doesn’t plan to hold up a bill over just that issue.

Other progressives, however, are not on board with the repeal efforts.

Rep. Alexandria Ocasio-Cortez (N.Y.), one of just two House Democrats from New York who did not sign on to the letter, told reporters last week that she disagrees with lawmakers who are insisting that a SALT cap repeal be a part of an infrastructure bill.

“I don’t think that we should be holding the infrastructure package hostage for a 100 percent full repeal on SALT, especially in the case of a full repeal,” she said. “Personally, I can’t stress how much that I believe that is a giveaway to the rich.”

Ocasio-Cortez, whose district has lower average and median incomes than those of Bowman, Jones and Porter, expressed openness to making changes to the cap, while emphasizing she opposes full repeal.

“There’s a conversation to be had, I think, about the cap itself and at what level it’s appropriate and where we can help families that are really deeply impacted,” she said.

Rep. Mark Pocan (D-Wis.), a former chair of the Congressional Progressive Caucus, also signaled little enthusiasm for repealing the cap. He acknowledged it is a top concern in other states but said it wasn’t a big issue in his home state.

“I think there’s better ways to get money to people who need it, rather than folks who have very large values in homes,” he said Tuesday.

Outside liberal groups are also criticizing the push to repeal the SALT deduction cap. The Institute on Taxation and Economic Policy released a report Tuesday that said repealing the cap would worsen racial income and wealth disparities because most of the benefits of repeal would go to high-income white families.

Steve Wamhoff, director of federal tax policy at the left-leaning think tank, said lawmakers shouldn’t repeal the SALT cap without a replacement because doing so would provide tax breaks to the wealthy.

“If we’re going to get rid of the SALT cap, we have to replace it with other limits on tax breaks for the rich,” he said.

Wamhoff also pointed to the cost of repealing the SALT cap as a challenge for lawmakers. His group estimated earlier this month that the personal income tax increases in Biden’s campaign plan would raise $162 billion in 2022, while repealing the SALT cap would cost about $100 billion.

Seth Hanlon, a senior fellow at the left-leaning Center for American Progress, said his organization generally is concerned that repeal of the SALT cap could prevent lawmakers from pursuing more pressing issues such as addressing climate change and child poverty. 

“A costly item like SALT repeal could displace other priorities,” Hanlon said.

The SALT issue has made for strange bedfellows as well.

Most Republicans are supportive of the $10,000 limit and are making the argument that repealing the cap would benefit wealthy people as they more broadly push back on Democrats’ agenda ahead of the midterm elections.

“If you get rid of that cap entirely, the benefit flows overwhelmingly, massively, to the top 1 percent,” Sen. Pat Toomey (R-Pa.) said during a Senate Finance Committee hearing on Tuesday.

The SALT cap has been a thorny issue for House Democrats in recent years. When the House held a vote on a standalone bill to temporarily repeal the cap two years ago, 16 Democrats voted against the measure. Many of those lawmakers are still in Congress and include a mix of centrists, progressives and lawmakers in states without income taxes.

The Democratic majority in the House is even slimmer now than it was in the previous Congress, meaning small groups of supporters or opponents of SALT cap repeal could have significant leverage in negotiations over major pieces of legislation.

Rep. James Clyburn (S.C.), the No. 3 House Democrat, said in a Bloomberg TV interview Tuesday that lawmakers should study the SALT deduction to see “how it should go about being applied.”

One possibility is that lawmakers could reach a compromise where the cap is increased but not fully repealed.

But repeal supporters are still trying to get more lawmakers on their side.

Rep. Josh Gottheimer (D-N.J.), a leading advocate for repealing the cap, this week proposed paying for removal of the $10,000 limit by increasing IRS enforcement to reduce the amount of unpaid taxes.

If such efforts fall short, Democrats who support repealing the cap say they think they’ll be able to find common ground with their progressive opponents.

“Ultimately, I think we can persuade Congresswoman Ocasio-Cortez to help us with the issue because it’s so important to our state,” Rep. Tom Suozzi (D-N.Y.) said Tuesday.

Updated at 8:54 a.m.