House Democrats are considering a five-year suspension of the cap on the federal state and local tax deduction before it’s reinstated in 2026, according to people familiar with the negotiations, a move that may let lawmakers argue expanding the tax break won’t hurt revenue.
That plan has become the leading option for dealing with the SALT deduction limit. It’s one of several items still under negotiation for legislation to enact President Joe Biden’s economic agenda as lawmakers from the Northeast and other high-tax areas push to suspend or significantly raise the cap.
The cap would be suspended from 2021 to 2025 under this plan, according to a Ways and Means Committee aide. The $10,000 cap would then be reinstated from 2026 to 2030, the person said.
Because the cap is currently scheduled to end in 2025, moving the restriction to a different five-year block within the 10-year budget window would let Democrats claim that the move doesn’t add to the deficit. However, Democrats say they hope to repeal the cap completely by then, though there is no guarantee they’ll have the majorities in Congress to do so.
“The cap on the SALT deduction remains a punishing blow to our home states of New York and New Jersey as we work to recover from the pandemic and get our economies on strong footing and our constituents back to work,” Representatives Tom Suozzi of New York and Josh Gottheimer and Mikie Sherrill of New Jersey, all Democrats who advocated for expanding the write-off, said in joint statement. “We will continue to work with House and Senate leadership to ensure the cap on the SALT deduction is repealed.”
The talks over a five-year suspension of the cap were reported earlier by Punchbowl News.
House Ways and Means Chairman Richard Neal said the idea of a five-year SALT-cap is “part of the discussion” but talks are continuing.
House Speaker Nancy Pelosi said she hopes to have the text of the final bill, including the SALT compromise, this evening. Representative Bill Pascrell, a New Jersey Democrat, said there will be an “uproar” from members if raising the SALT deduction limit isn’t in the bill that goes to the floor and that House leaders have committed to including it in the tax and spending plan.
Tax Vow
The SALT deduction is a valuable tax break for many residents of high-tax states, including New York and California. Nearly two dozen representatives have vowed to block Biden’s economic agenda until they can find a way to address the $10,000 SALT cap, which was imposed in President Donald Trump’s 2017 tax law.
Plans to completely lift the cap have faced some resistance from progressives, including Representative Alexandria Ocasio-Cortez of New York, who says that would do too much to benefit billionaires. She has said she supports a cap higher than $10,000 to help middle-income taxpayers.