Pelosi floats undoing SALT deduction cap in next coronavirus bill

Speaker Nancy Pelosi (D-Calif.) on Monday suggested that a controversial portion of President Trump’s 2017 tax law could be retroactively rolled back in the next coronavirus relief bill.

In an interview with The New York Times, Pelosi suggested that reversing the tax law’s $10,000 cap on the state and local tax (SALT) deduction for 2018 and 2019 could be a way to provide individuals with more money. 

“They’d have more disposable income, which is the lifeblood of our economy, a consumer economy that we are,” Pelosi told the Times. 

The cap on the SALT deduction has been strongly disliked by politicians in high-tax, Democratic-leaning states such as New York, New Jersey and California, who argue that it has punished their residents and makes it harder for their states to provide public services.

“New Jersey is already an expensive place to live, and, right now, the coronavirus outbreak is hitting us hard — impacting our families, their jobs, their incomes, and local business owners,” Rep. Josh Gottheimer (D-N.J.) said in a statement Tuesday. “That’s why I’m calling on Congressional leadership to include in the next coronavirus relief package a full reinstatement of our SALT deduction, to get real tax cuts to help rescue Jersey families from this health and economic crisis.”

New Jersey Gov. Phil Murphy (D) said Tuesday he spoke with Pelosi on Monday about lifting the SALT deduction cap.

But most Republicans support the SALT deduction cap, arguing that it helps to prevent the tax code from subsidizing higher state taxes.

GOP lawmakers and tax-policy experts across the ideological spectrum criticized Pelosi’s idea late Monday, arguing that repealing the SALT deduction cap would largely benefit high-income taxpayers.

“This is a nonstarter,” a spokesperson for Senate Finance Committee Chuck Grassley (R-Iowa) said. “Millionaires don’t need a new tax break as the federal government spends trillions of dollars to fight a pandemic.”

Sen. Pat Toomey (R-Pa.) said that “restoring the SALT deduction, as Speaker Pelosi advocated, would once again force low and middle income people to subsidize wealthy individuals in high tax states and municipalities — like the Speaker’s home in San Francisco, California.”

Pelosi spokesman Henry Connelly said in a statement to The Hill that “action on SALT would be tailored to focus the benefits on middle class earners and include limitations on the high-end.” 

Legislation that repeals the SALT deduction cap would struggle to pass the Republican-controlled Senate, and it could also face some resistance in the House. In December, the House passed legislation to temporarily repeal the SALT deduction cap on a near party-line vote, but only after Democrats agreed to accept a Republican motion to amend the measure to prevent the repeal of the cap from applying to taxpayers with income of more $100 million. Sixteen Democrats voted against the bill.

Pelosi’s comments come as House Democrats are starting to think about what they would like to see in a fourth coronavirus relief bill. Trump on Friday signed a third, $2 trillion coronavirus package, which includes one-time direct payments to taxpayers that begin phasing out for individuals making more than $75,000 and married couples making more than $150,000. 

Pelosi has expressed interest in providing more direct payments to Americans, and she and other Democrats are already eyeing a fourth round of legislation as the nation grapples with the economy-crippling pandemic.

In a call with reporters on Monday, Pelosi and key House committee chairs said that infrastructure is a top priority for a fourth coronavirus bill.

Updated at 2:08 p.m. on March 31.