Democrats Salvaging Tax Agenda From State And Local Tax Hang-Up

The Build Back Better Act may partially restore the state and local tax deduction, but Bernie Sanders wants to make sure millionaires don't benefit.

WASHINGTON ― The Build Back Better Act won’t deliver the surprising millionaire tax cut Democrats were considering earlier this week.

House and Senate Democrats have come up with competing proposals to undo a $10,000 limit on state and local tax deductions that Republicans imposed in 2017. The new ideas are alternatives to the full repeal that Sen. Chuck Schumer (D-N.Y.) floated on Tuesday.

“There is now an understanding that it would be totally unacceptable from a financial point of view to give massive tax breaks to the wealthiest people in this country by completely repealing the SALT cap,” Sen Bernie Sanders (I-Vt.) told HuffPost on Wednesday.

Fully repealing the so-called SALT deduction would be such a windfall for millionaires that they would still come out ahead even if they had to pay the new surtaxes Democrats have proposed on incomes above $10 million.

Sanders and Sen. Bob Menendez (D-N.J.) proposed keeping the limit, but with an exemption for households earning less than $400,000. Such an exemption would cover the vast majority of households in the U.S.

Separately, House Democrats on Wednesday proposed lifting the cap from $10,000 to $72,000. Property taxes vary widely by state, but the average household pays less than $2,500, according to a WalletHub analysis. The limitation mostly affected high-income taxpayers in high-tax states.

Sanders said the House idea would be better than a full repeal, but still bad. “This approach would cost over $50 billion a year and would provide 37% of its benefits to the top 1%,” he said.

The looming compromise on the so-called SALT cap is one of several policy disagreements Democrats appear to be resolving this week as they rush to finalize their Build Back Better legislation — a task lawmakers said became more urgent after the party’s brutal loss in Tuesday’s gubernatorial election in Virginia.

The Build Back Better Act would make prekindergarten universally available, subsidize child care for working families, invest hundreds of billions in green energy and continue a monthly child allowance that started this summer.

Democrats intend new taxes on higher earners to pay for the full cost of the legislation, but a coalition of Democrats from states with high taxes, such as New York, New Jersey and California, have sought to repeal the SALT limit.

Party leaders have said for weeks they would accommodate the SALT demands, but resisted putting out any ideas until now. Democrats from those states have insisted the limit harmed middle class families, even though tax experts agree that unlimited local tax deductions overwhelmingly benefit millionaires.

Menendez said the Senate proposal he and Sanders favor would protect 98% of homeowners in New Jersey.

“I would dare say that’s probably true in most of the other states that have been affected negatively by the cap,” Menendez said.