Sen. Bernie Sanders said he could support unlimited SALT deductions only for those earning under $400,000 a year.
Talks were centering on a two-year suspension of the cap.
In lieu of tax hikes, Democrats are considering increased federal oversight of Americans' financial lives.
Democrats' scaled back spending package could still deal with state and local tax deduction caps.
The plan could dramatically rewrite tax rules for wealthy Americans and businesses.
The plan raises the top rate for taxing capital gains to 25% from 20% under current law.
Democrats still intend to pass trillions of dollars in new spending unilaterally via reconciliation.
The Medicare rule is aimed at reducing out-of-pocket costs for patients outside Medicare.
President Biden urged Senate Democrats to act boldly on his sweeping social and economic agenda Wednesday.
Moderates argue that the U.S. has spent enough "free money" already on stimulus efforts.