Democrats will soon have the balance of power required to repeal President Donald Trump’s limitation on a prized tax deduction, but doing so will likely require a tricky procedural process and a politically fraught vote.
There are few issues that have riled certain segments of the Democratic Party more than Trump’s cap on write-offs of state and local tax, or SALT. Repealing it, however, would require Democrats to vote for something widely seen as a tax cut for the rich at the same time the party is proposing tax increases to make the Internal Revenue Service code more progressive.
Democrats have been trying to restore unlimited SALT deductions since the 2017 tax law capped the benefit at $10,000. Lawmakers from high-tax states, including New York, California and New Jersey, where the tax break is particularly valuable, decried the move saying it was punishing their voters to pay for Trump’s $1.5 trillion tax cut for corporations and the wealthy.
Senator Chuck Schumer of New York, who will become the chamber’s majority leader thanks to the victories of Raphael Warnock and Jon Ossoff in this week’s Senate runoff elections in Georgia, said last year that abolishing the SALT deduction cap would be among his top priorities.
“When we get in the majority we’ll do it permanently,” Schumer said at a press conference on Long Island in July. His office didn’t immediately respond to a request to comment.
Senator Ron Wyden, an Oregon Democrat poised to control the Finance Committee, said in a statement that he would be looking to lift the SALT cap as part of a broader tax agenda.
The politics are easy for lawmakers from high-tax states where many residents saw their deductions decline following the 2017 tax overhaul, but it’s a harder sell for Democrats in low-tax states where few constituents owe more than $10,000 in state income and property taxes.
It’s even trickier because allowing taxpayers to write off their full SALT bills largely benefits the wealthiest Americans. About 52% of the benefit from repealing the cap flows to households earning at least $1 million a year, according to the the non-partisan Joint Committee on Taxation.
Because of that, it’s earned a reputation among Washington economists and policy wonks across the political spectrum for being a dumb idea. Jason Furman, a former economic adviser to President Barack Obama has called restoring the full tax break a “waste of money.”
“At best, the SALT deduction is a warped way to do social policy; at worst it is a politically motivated handout to the richest people in the richest places,” two Brookings Institution researchers wrote in a report last year. “Either way, it is bad policy -- especially at a time of rising inequality.”