Democrats Reach Deal to Raise Cap on SALT Deduction to $80,000

Legislators from New York and New Jersey appear on the verge of a major victory as House Democrats have forged a compromise that would raise the cap on State and Local Tax (SALT) deductions from the current $10,000 to $80,000, the Daily News reports. The relaxed cap on federal tax returns would last until 2031. The deal is part of President Joe Biden's $1.9 trillion Build Back Better plan, which, even if it passes in the House of Representatives next week, still faces a stern test in the U.S. Senate. 

Moderate Reps. Tom Suozzi of New York and Josh Gottheimer of New Jersey contend that the cap unfairly punishes many moderate-income families in expensive areas like metro New York City, including middle-class residents of co-ops and condominiums. These moderates had threatened to scuttle the entire Build Back Better bill if their demands on the SALT deductions were not met. Initially, they wanted to simply eliminate the cap, which was enacted by Republicans as part of President Donald Trump’s 2017 tax cuts. Democrats complained that the cap intentionally targeted high-tax Democrat states like New York, New Jersey and California.

"This is a big victory for the people," Suozzi tells Habitat. "But it's a difficult battle because a lot of Republicans and progressive Democrats are opposed to raisng the SALT cap, even though it would benefit 98% of the people who use the deduction."

Progressives like Sen. Bernie Sanders of Vermont, however, have pushed back hard against restoring the deduction in full because, they contend, the greatest benefits would go to high-income people who pay outsize state income and property tax bills.

Standing in the way of the House deal are moderate Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, who have expressed concerns about whether there will be enough new taxes to pay for the Build Back Better bill, potentially raising questions about whether they will go along with the House's revenue-reducing deal on the SALT deduction.