WASHINGTON — Democrats are considering changing the law to let Americans deduct more state and local taxes from their federal returns as part of a major economic package of liberal priorities, a policy that would help high-tax states primarily in the Northeast.
A group of House Democrats pushing to lift the "SALT" cap, most of them from New York and New Jersey, insisted Wednesday the deduction is progressive, and that the $10,000 cap created in the 2017 Republican tax law is "anti-union" and hurts the middle class.
The SALT cap has become an internal challenge for Democrats. Liberals in the party had resisted repealing the new limits, arguing it would benefit the wealthy. But proponents of reversing the cap are now arguing it would allow states to more easily tax the rich, to the benefit of teachers and firefighters.
The nonpartisan Tax Policy Center found that if the SALT cap were to be repealed entirely, 70 percent of the benefits would go to people with annual incomes above $500,000, and that most middle income Americans making five figures would see no benefit.
But the Democrats whose districts were hit hardest by the SALT cap are offering a new argument. They say deduction makes it easier for states to tax the rich and use the money to deliver government benefits, including for union workers. And they're enlisting union leaders to carry the message.
The SALT limit "really put an unfair burden on all of our cities and towns across the United States," said Ed Kelly, president of the International Association of Firefighters, which boasts a membership of 285,000 firefighters and medical professionals. "It put a lot of stress and strain on our ability to protect you, to educate your children, to take care of our most vulnerable, like our elderly."
Kelly stood beside 10 Democrats, led by Rep. Tom Suozzi, D-N.Y., and including some politically vulnerable members including Rep. Mikie Sherrill, D-N.J., and Rep. Lauren Underwood, D-Ill. They insist that a budget reconciliation bill lift the SALT cap.
‘No SALT, no deal’
Democratic leaders have begun grappling with ways to placate that constituency. A draft proposal by Sen. Bernie Sanders, I-Vt., the Budget Committee chair and a key player in crafting the legislation, includes $120 billion for "SALT" relief over five years, according to a copy obtained by NBC News.
A source familiar with the behind-the-scenes negotiations said one idea under discussion among Democrats is to nix the cap only for those making $400,000 or less, but that nothing has been finalized.
"No SALT, no deal," Suozzi said, vowing that he and his allies have the votes to block a bill that makes changes to the tax code if it doesn't also lift the SALT cap.
He called it "a very positive development that Sen. Sanders has included that in his proposal."
Rep. Tom Malinowski, D-N.J., who barely won re-election to a second term last November, said the economic bill would be like "a very complicated jigsaw puzzle."
"The puzzle doesn’t get built if we don’t address the SALT deduction," he said.
The politics of SALT are tricky for Democrats. At a local level, it could help endangered suburban members where the deduction is heavily used. But at a national level, it would undercut their message that the rich need to pay more in taxes. President Joe Biden, notably, has left SALT out of his tax overhaul proposals and focused on raising rates for corporations and people making $400,000.
Senate Minority Leader Mitch McConnell, R-Ky., said earlier this year: "House Democrats are demanding a special SALT carve-out that would cut taxes for wealthy people in blue states."
Sanders said any SALT relief would need to be targeted.
"What I would support is the understanding that there are middle-class families in states where property taxes are very high that are paying a whole lot in state and local taxes, and I think we have to support them," Sanders said Wednesday on MSNBC, adding that "billionaires who own a massive mansion" should not benefit.
'A SALT march, like Gandhi did'
Some liberal Democrats are also leery of expanding the SALT deduction.
"If it was a standalone bill I would probably vote against it as I have before. I think there's better ways to provide assistance for people who need it most," said Rep. Mark Pocan, D-Wis., a progressive caucus member. "But it's not my issue I'd go to the grave on."
At the Wednesday press conference outside the Capitol, the Democrats pushing to lift the SALT cap sought to argue in various ways that doing so would ultimately benefit the middle class.
Sherrill said New Jersey has "the best public school system in the nation" along with relatively high wages for teachers, firefighters and nurses. "The SALT deduction cap threatens our ability to keep making those investments," she said.
Malinowski argued that those who wouldn't directly benefit from lifting the SALT cap would indirectly gain, citing as an example renters whose landlords had raised rent due to their higher tax bills as a result of the $10,000 deduction limit.
Rep. Jamie Raskin, D-Md., said he represents middle class people "severely affected" by the SALT cap, who want relief.
"We've got to have a SALT march, like Gandhi did," he said, drawing laughter from his colleagues. "Let's have a SALT march in America to restore some common sense to our tax policy."