Democratic worries grow over politics of SALT cap

Democratic concerns are mounting that a tax provision in President Biden’s social spending package that is prized by suburban lawmakers from New York and New Jersey could come back to haunt the party in the midterm elections.

Republicans are increasingly attacking Democrats for rolling back the $10,000 cap on the state and local tax (SALT) deduction, arguing it will largely benefit the rich. A number of Democrats are fearful that the GOP criticisms could resonate with voters in areas outside of large coastal metropolitan areas.

In an interview with The Hill on Wednesday, Rep. Jared Golden (Maine), the only Democrat to vote against the social spending measure in the House, predicted that there would be “millions of dollars of attack ads” against vulnerable Democrats on the SALT deduction issue.

“Doing SALT I think further solidifies a growing narrative that the Democratic Party is an urban elite, wealthy party that can’t break out of urban areas, liberal urban communities,” Golden said.

Golden is the most outspoken critic of the provision, but he is far from alone. A number of Democrats in the House and Senate have raised their reservations on both political and policy grounds.

Rep. Stephanie Murphy (D-Fla.) said the SALT deduction provision isn’t “helpful” to her, though she said lawmakers advocating for the changes were acting on the desires of their constituents.

“I certainly don’t think it was helpful from my perspective as someone who represents Floridians,” she said. “As a party, we have done so much talking about how this is about making sure people pay their fair share and taxing the upper-income people as well as [the] largest corporations. … Clearly SALT falls in the category that is not consistent with those goals and those values.”

Liberal lawmakers have argued that undoing the cap on the deduction flies in the face of the party’s efforts to present itself as a champion of working families, even as they note provisions throughout the larger bill that would help low-income and middle-class households.

The White House has distanced itself from the issue in another sign of the potentially toxic politics, especially for those Democrats trying to win votes outside expensive suburban communities.

White House press secretary Jen Psaki repeatedly mentioned during Tuesday’s press briefing that changes to the SALT deduction cap were not part of Biden’s original proposal for the social spending package.

“He didn’t propose it initially, but we are working to get this bill done,” Psaki said. 

Republicans are signaling the issue will be at the center of their efforts to win back House and Senate majorities next fall.

Democrats have a narrow 221-213 majority in the House, and the Senate is evenly split between Democrats and Republicans.

The provision in question would roll back the $10,000 limit on the SALT deduction that was established by Republicans’ 2017 tax law signed by former President Trump.

That bill, which slashed the corporate tax rate from 35 percent to 21 percent and lowered tax rates for individuals, helped pay for tax cuts by imposing the $10,000 cap on the SALT deduction, a move Republicans at the time happily noted would disproportionately hit households in blue districts or states.

The bill that House Democrats passed last month would increase the cap from $10,000 to $80,000 through 2030, with the cap returning to $10,000 for 2031. The Senate bill is expected to take a different approach on the SALT deduction that would exempt taxpayers under a certain income level from the cap while leaving the $10,000 in place for higher-income taxpayers. Senate Democrats are still negotiating the details of their SALT deduction provision.

Several analyses have found that the House provision is one of the largest items in the bill and would largely benefit high-income households. As a result, Republicans have gone on a messaging blitz to paint the bill as a boon for the rich.

Democrats are annoyed with the GOP attacks, saying Republicans are hypocrites because their 2017 tax law cut taxes for the rich. Still, some Democrats think that Republicans’ messaging could work.

“This is going to be a pretty strong critique from the Republicans. I think it will be pretty effective,” said a Democratic strategist involved in House races.

The strategist said that voters’ perception of the economy is key for the midterms, so Democrats should be prioritizing policies that most benefit people.

Moderate Democrats from red states say they hope the Senate makes changes to the SALT deduction provision that limits benefits for high-income households and dulls the impact of Republicans’ criticisms.

“Hopefully whatever we get to is a compromise that will not put anybody in a difficult situation on that,” said Rep. Henry Cuellar (D-Texas). Cuellar said he is more favorable to the Senate’s approach on SALT to the provision in the House bill.

Sen. Jon Tester (D-Mont.), who has raised concerns about the House provision, said he thinks there’s a “sweet spot” for Democrats on the SALT deduction.

“Republicans are going to message on whatever they want to message. The issue is just doing the right thing,” he said.

Golden said that what the Senate is considering is an improvement over the House bill, but still doesn’t sufficiently target the tax cuts to the middle class. The Maine Democrat also said he’d like for the spending package to include fewer years of SALT deduction-related tax cuts for higher income households and more years of the enhanced child tax credit.

Meanwhile, supporters of rolling back the SALT deduction cap say it’s good politics in their districts and beyond. Some of the advocates for SALT deduction changes campaigned on the issue when they were first elected to Congress in 2018.

“We have homeowners all across this country who got hurt by the 2017 tax bill,” said Rep. Tom Malinowski (D-N.J.).

Blue-state lawmakers also said that undoing the SALT deduction cap is good policy because it will help states to provide robust public services.

“Our states and our localities are the laboratories of democracy,” Rep. Thomas Suozzi (D-N.Y.) said Wednesday at a news conference with labor union leaders.