President Donald Trump’s 2017 tax law disproportionately targeted Democrats in high-tax states by eliminating a popular federal deduction. Now Trump’s legislative triumph has put President Joe Biden in a bind.
Newly released Internal Revenue Service data show the politically lopsided impact of the $10,000 cap on deducting state and local taxes, or SALT—and why Democrats from the hardest-hit SALT states may be willing to cost Biden the crucial victory of passing his $2.25 trillion infrastructure and social services plan if he continues to insist on keeping Trump’s cap in place.
In some New York congressional districts, the average deduction lost because of the SALT cap can be more than $100,000 a year, according to the IRS data. And of the 40 congressional districts with the largest SALT deductions disallowed under the Trump tax law, 39 are represented by Democrats.
“I’m not voting for any change in the tax code whatsoever unless there’s the restoration of the SALT tax deduction. I’m laying that chit on the table,” said Tom Suozzi, a New York Democrat who’s emerged as a leader of a bipartisan SALT Caucus.
The demand by Democrats from high-tax states has complicated Biden’s hopes for party unity on his second major legislative effort, and heightened the real-world difficulties of paying for the massive infrastructure bill without raising taxes on the middle class, a key Biden campaign promise.
Democrats have a 218-212 majority in the House. With no Republicans likely to vote for a Biden-led tax increase, they can’t afford to lose more than three votes.
SALT Cap Hits New York Area Hard
“Around here the operational question is how many votes do you have. We already have a lot of votes for this issue and it’s going to grow,” said Representative Anna Eshoo, a California Democrat. Nearly one-third of her constituents in a district that includes wealthy enclaves of Silicon Valley lost an average of $73,808 worth of deductions, the IRS data shows.
The White House has acknowledged a growing Democratic opposition but has so far resisted pleas to restore the full SALT deduction in Biden’s tax plan.
“Just with our little calculators out, it is not a revenue raiser. And so it would add costs—and potentially significantly—to a package. There’d have to be a discussion about how that would be paid for, what would be taken out instead,” White House Press Secretary Jen Psaki said last week.
Part of the administration’s objection is that the cap pays for parts of Biden’s plan. The cap helped raise $77.4 billion in the first year after Congress passed the Trump tax overhaul, according to the Joint Committee on Taxation, the bipartisan congressional committee that puts a price tag on tax proposals. Restoring the full deduction would cost $88.7 billion for 2021 alone, the committee said.