President Joe Biden’s big infrastructure plan, which he began rolling out Tuesday night, will face a lot of objections from Republicans for being too expensive and unfocused. But it will also face danger from Democrats upset about taxes.
With a razor-thin margin of Democrats in the House and Senate Majority Leader Chuck Schumer in their corner, they hope to see repeal of the cap on state and local income tax deductions put in place by Republicans in 2017. The cap meant taxpayers in high-tax jurisdictions, often states in the Northeast, paid more.
“It was a dagger aimed at the heart of New York,” Schumer said of the cap at an event Wednesday in Buffalo.
“It hurts many middle class families here in western New York and elsewhere. It’s something we want to try, to get the cap lifted, in this bill,” he said.
Schumer’s comments came a day after three House Democrats threatened to withhold their support for a public works bill unless the cap was repealed. With House of Representatives membership currently split at 219 Democrats and 211 Republicans, House Speaker Nancy Pelosi can only afford to lose three members of her own party and pass a bill, if all members vote along party lines.
“We say ‘No SALT, no deal,’” three northeastern House Democrats said Tuesday night, as details of Biden’s proposal began to emerge.
“The GOP passed an unfair cap of $10,000 on state and local tax (SALT) deductions to pay for their 2017 tax giveaway. Due to the GOP cap, our home states of New York and New Jersey have been crushed and residents have been leaving for other states,” wrote Rep. Josh Gottheimer and Rep. Bill Pascrell, both of New Jersey, and Rep. Tom Suozzi of New York.
The Biden administration has been reluctant to take up the issue so far, given it would both cost the government revenue and the benefits in many cases would go to higher-income residents of those high-tax states.
Treasury Secretary Janet Yellen, during an appearance before the House Financial Services Committee March 23, offered to work with Congress to find a compromise but stopped short of endorsing a repeal.
“There are a lot of options that have been presented and I would work with you to try to ensure that the inequities that this caused are remedied in a fair and responsible way,” she told Gottheimer at the time, specifically mentioning increasing a proposed cap on overall itemized deductions.
While Schumer did not say what he would be satisfied with , he said the chances for getting something done on the state and local taxes deduction cap were looking “better and better.” The House trio in their statement said “we will not accept any changes to the tax code that do not restore the SALT deduction and put fairness back into the system.”
Republicans have said Democrats would be hypocritical to repeal the cap after criticizing them for skewing the 2017 tax cuts towards the rich. And balanced budget advocates have said the proposal should be paid for with spending cuts or new revenues from elsewhere in the budget.
The Committee for a Responsible Federal Budget has called repealing the cap “regressive,” noting a Tax Policy Center estimate that 96% of the benefits from a SALT cap repeal would go to the top one-fifth of all taxpayers.