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Democratic heartburn grows over middle class tax provision that also benefits the wealthy

The SALT tax cap has become a target of Republican criticism of the legislation.

WASHINGTON – Democrats vowed that the wealthy would pay for their $1.75 trillion family care and climate change plan.

But a new cost analysis shows that as Democrats try to undo a tax increase Republicans implemented just four years ago on many middle class homeowners in high cost of living states, the benefits to the millionaires and billionaires is complicating Democrats’ message that those same people should pay more in taxes.

Republicans — unable to stop the effort to pass a sweeping social safety net bill that would create programs like universal pre-K and paid parental leave — have already mounted an effort to try to make the legislation a liability for Democrats in next year’s midterm elections. And they are seizing on Democratic nervousness that this provision, which was the single top priority for several moderate House members, would also help the most wealthy.

The state and local tax deduction — known as SALT — was a last minute addition to the bill to secure the votes of lawmakers from New Jersey, New York and California. House Democrats would lift the cap on state and local tax deductions from $10,000 to $80,000.

But the measure is causing some Democrats heartburn as they grapple with how to keep their promise that the wealthy would pay higher taxes and the Build Back Better plan would be fully paid for while also providing tax relief to the middle-class taxpayers. The SALT cap was created by the Republicans’ 2017 tax bill and seen as a way to cut taxes on corporations while offsetting it with an increase on property owners in liberal-run states, where local tax rates were higher.

President Joe Biden has repeatedly vowed that those who make less than $400,000 a year would not pay more in taxes — but those who make more should take on a larger share of of the nation's tax burden.

Democrats' move to increase the cap is sure to help those middle-class homeowners, but it will also help those who are wealthier.

But now in the late stage of negotiations where Democrats are anxious to pass the legislation and wary of prolonging talks, this is an issue that could complicate their already-thrice stalled timeline.

“Not a big fan,” Sen. Jon Tester, D-Mont., said. “I think it gives tax breaks to the wrong people.”

A new analysis from the Joint Committee on Taxation found that the SALT provisions would give two-thirds of people making more than a million dollars a tax cut.

California Housing Crisis
Democrats' move to increase the cap is sure to help those middle-class homeowners, but it will also help those who are wealthier.David Paul Morris / Bloomberg via Getty Images

“I think it is absurd,” Sen. Bernie Sanders, I-Vt., told NBC News. “I think it's exactly the opposite of what the American people want. And what we've been talking about. What we have said is that at a time of massive income and wealth inequality, we asked the wealthy to start paying their fair share of taxes. The idea that there will be some millionaires who end up better off under this bill than under Donald Trump is totally unacceptable.”

Republicans, who are uniformly opposed to the Democrats $1.75 trillion Build Back Better Plan, have already tried to make the SALT cap a political liability, saying that Democrats are giving the wealthy a tax break.

Rep. Kevin Brady, ranking member of the House Ways and Means Committee who was the architect of the 2017 Republican bill that imposed the cap in the first place, also called it “absurd.”

“The Democrats are dedicating hundreds of billions of dollars to tax breaks that goes primarily to the wealthy - two out of three millionaires will see a major tax cut,” Brady told NBC News.

Democrats say that the SALT provision ensures that middle class families receive relief from high state and local taxes, but are aware of the attacks from Republicans and mindful of breaking their own pledges.

“Republicans are making the argument vociferously and repeatedly that they’re going to say that Democrats now are easier on millionaires than they were in 2017,” Sen. Ron Wyden, chair of the Senate Finance Committee, said. “I think this makes the case for why we oughta deal with major tax avoidance.”

Wyden is searching for new ways to raise revenue and ensure the wealthiest Americans aren’t receiving a tax break, including closing the carried interest tax loophole.

But others want to alter the SALT measure.

Sanders and Sen. Bob Menendez, D-N.J., who hails from a high tax state, are formulating an alternative plan, which would place an income cap on people who can utilize the SALT provision, preventing millionaires and billionaires from benefiting. But that plan, while floated earlier in November, has not been formalized.

Congressional Progressive Caucus Chair Pramila Jayapal, D-Wash., said Democrats “need to be thoughtful” about ensuring that the SALT cap isn’t structured in a way that would ease taxes on the wealthy, a concern she has with the current House plan.

“We were trying to come to some compromise that would, you know, put a cap on it and also ensure that this would be a revenue contributor, not a revenue detractor,” she said.

What continues to be off the table are raising tax rates on the wealthy. Sen. Kyrsten Sinema, D-Ariz., opposes tax rate increases on the wealthy and corporations, key pillars of President Biden’s original plan to raise revenue. Some top Democrats in the Senate say Sinema’s rigid opposition to increased tax rates is making their job more difficult. In the 50-50 split Senate where Democrats need Sinema’s vote, other proposals to tax the very wealthy went to the cutting room floor.

“She preferred to go another way and the way the votes are constructed, we're trying to work to find the best result,” Senate Majority Whip Dick Durbin, D-Il., told NBC.

Proponents of the plan are defending it as necessary to provide relief to middle class constituents.. Rep. Josh Gottheimer, D-N.J., said that the middle class families in New Jersey took a huge financial hit with the implementation of the cap.

“By fighting to reinstate the SALT deduction, I’m working to make life more affordable for North Jersey middle class families. They deserve actual tax relief,” Gottheimer told NBC News in a statement, noting that the average property taxes in New Jersey are nearly 30 times higher than in Alabama.

But highlighting the divisions in the party on the issue, Rep. Jared Golden, D-Maine, who is unlikely to vote for the bill, tweeted his opposition to the SALT proposal. “Proponents have been saying that the BBB taxes the rich. But the more we learn about the SALT provisions, the more it looks like another giant tax break for millionaires,” he tweeted.