As Democrats race to iron out the provisions in their massive new spending plan, one proposal with broad support among moderate party members could actually help the country’s highest earners snag a big tax cut in the first two years—effectively unraveling the gains from a highly publicized proposal to tax billionaire wealth, a nonpartisan policy think-tank said Tuesday.
Though many of the agenda items in Democrats’ Build Back Better package are still unknown and in flux, a rumored two-year repeal of the $10,000 cap on the state and local tax (SALT) deduction would represent a roughly $70 billion tax cut for the top 5% of earners in 2023, the Committee for a Responsible Federal Budget wrote in a Tuesday report.
A slew of moderate Democrats—including many from high-tax states like New York and New Jersey—have protested the deduction cap, which was enacted by former President Donald Trump’s Tax Cuts and Jobs Act in 2017, and even said they won’t support a spending plan that doesn’t restore the full deduction for state and local taxes.
Though Democrats have also discussed broadening requirements for a tax on investment income and a new tax on billionaires’ unrealized capital gains, the CRFB estimates possible provisions would only raise taxes on the highest-earning 5% of Americans by about $50 billion in 2023.
That would result in a $20 billion tax cut for Americans in the top 5% thanks to the SALT cap repeal, with about $10 billion of that benefitting the top 1% of households, the CRFB found.
House Ways and Means Chair Richard Neal (D-Mass.) on Tuesday acknowledged Democrats were still “thinking about” suspending the $10,000 limit for two years, while Rep. Bill Pascrell (D-N.J.), who met with President Joe Biden on Monday, said the repeal was an “everyday subject” in negotiations.
“If lawmakers truly intend to raise taxes for high earners, SALT cap repeal makes that goal much more of a challenge,” the CRFB said Tuesday.
As part of Trump’s 2017 tax plan, the SALT deduction’s $10,000 limit—enacted to help pay for Republicans’ tax cuts—was authorized through the end of 2025, after which it’s scheduled to revert to a full tax break. However, many Democrats have since conditioned their support for the party’s social spending plan on a full repeal of the cap, with some lawmakers in high-tax states arguing the provision has incentivized Americans to move to states with lower tax rates. “No SALT, no deal,” Rep. Tom Suozzi (D-N.Y.) told reporters on Tuesday. Last month, Suozzi said he was “completely opposed” to anything but a full repeal, saying lifting the cap would “help a lot of people” in his district, but “wouldn’t address the policy issue, which is that people are leaving our states.”
What To Watch For
Democrats have yet to specify when they’ll unveil the details of their new spending proposal, but it’s certainly expected to fall significantly short of the $3.5 trillion price tag announced earlier this year, largely as a result of opposition to heightened spending from moderate party members. Sen. Joe Manchin (D-W.V.), for example, has long insisted he preferred a $1.5 trillion package, but on Tuesday suggested he may be willing to go higher. Lawmakers are trying to finalize a deal before Biden departs for a trip to Europe on Thursday.