The two Democrats leading the fight to repeal the $10,000 cap on state and local tax deductions argued that the break is important to their states to prevent high-income residents—and the budget revenue they generate—from fleeing to lower-tax areas.
Representatives Josh Gottheimer of New Jersey and Tom Suozzi of New York said that restoring the state and local tax, or SALT, deduction on federal taxes benefits taxpayers who, through the state income levies and property taxes they pay, substantially help fund schools, children’s health insurance and services for the elderly.
“There are wealthy people that benefit from this. There is no question about it whatsoever,” Suozzi said Thursday at a USA Today event. “We don’t want to lose these wealthy people leaving us because it leaves a hole in our revenue sources and as a result the middle class and lower-income people are left holding the bag.”
The lawmakers are addressing head-on the criticism they’ve received from Republicans and some progressives, including Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders, that repealing the $10,000 cap on the tax break would largely benefit the richest Americans.
The data supports that critique: more than half of the benefits from restoring the SALT deduction would go to households making $1 million or more a year, according to the Joint Committee on Taxation. The campaign to repeal SALT by Gottheimer, Suozzi and other lawmakers from high-tax states comes as President Joe Biden is proposing to raise taxes on households making more than $400,000 as a way to pay for his economic agenda.
The debate within the Democratic party over SALT is set to be a key point of friction as Congress begins to address Biden’s plan to spend more than $4 trillion on infrastructure projects, green energy, and a vast expansion of social services funded by tax increases. Suozzi and Gotteimer, along with more than a dozen other Democrats and a few Republicans, have said they wouldn’t support Biden’s economic plans unless the bill also included an expansion of the SALT deduction
“That’s my test: Is life going to get more expensive for people in my district? If it is, I’m out,” Gottheimer said.
Biden’s plans don’t include a larger SALT deduction, which would cost about $88.7 billion to re-instate for 2021, according to the Joint Committee on Taxation. White House Press Secretary Jen Psaki said that lawmakers need to find a way to pay for the deduction if they want to add it to Biden’s plans.
Suozzi said he supports raising the top income tax rate to 39.6% to offset the cost of expanding the deduction. Gottheimer has floated increasing IRS enforcement to recover unpaid tax dollars to pay for a more generous SALT write-off. Biden has proposed both of those changes, but is using that revenue to fund other expenditures, meaning the SALT pay-for is likely to be an ongoing debate as Congress drafts the legislation.
This article was provided by Bloomberg News.