Democrats dial back SALT goal with new focus on partial rollback

House Democrats are looking to find a compromise solution to the Republican tax law’s cap on the amount of state and local levies that can be written off a federal return, a limit they say has caused their constituents to lose out on billions of dollars of deductions.

Lawmakers are looking for a middle-of-the-road approach — such as raising the cap, rather than restoring the full deduction — in an attempt to find something that could pass a divided Congress, said Representative Tom Suozzi, a New York Democrat who has written a bill to reinstate the entire break for state and local taxes, or SALT.

“I recognize that is a lot of money and it will be hard to get support for the entire thing,” he said after meeting Wednesday with a “working group” of Democrats from the House Ways and Means Committee.

Rep. Lauren Underwood, D-Illinois
Lauren Underwood Photographer: Andrew Harrer/Bloomberg

The 2017 Republican tax law capped the once-unlimited deduction at $10,000. The change angered Democrats from high-tax states like California, New York and Connecticut, who said the Trump administration was targeting their constituents to pay for part of a $1.5 trillion tax cut bill.

The cap, combined with reduced tax incentives for home mortgages, will bring the federal government $668.4 billion over a decade, according to the non-partisan Joint Committee on Taxation.

Democrats on Ways and Means formed the working group in a last-ditch attempt to push through a change, even though the White House and Senate have indicated it won’t get traction with Republicans, who are unwilling to tinker with their signature legislation.

Representative Mike Thompson of California is leading the effort to get Democrats to unite behind a single strategy. So far, lawmakers have three bills sponsored by lawmakers from high-tax states — New York, New Jersey and Illinois.

Suozzi and Peter King, a Republican from a neighboring district on New York’s, have legislation to repeal the cap. Two New Jersey Democrats, Representative Bill Pascrell and Senator Bob Menendez, also have a bill that would also reinstate a full SALT deduction and partially pay for it by increasing the top individual tax rate to 39.6 percent, up from 37 percent.

Two Illinois Democrats, Representatives Lauren Underwood and Sean Casten, have written a bill that would increase the cap to $15,000 for an individual or $30,000 for a couple.

Repealing the SALT cap isn’t universally popular among Democrats. Some are concerned that fully restoring the deduction — at a price tag of $620 billion, according to the Urban-Brookings Tax Policy Center — would mostly help the wealthy at a time when the party is focusing on combating income inequality.

Democrats working on the issue say they plan to offset the cost of a SALT compromise with tax increases elsewhere.

“We’re trying to pay for whatever we do,” Thompson said.

In February, President Donald Trump indicated he might be open to revising the cap. New York Governor Andrew Cuomo rushed to discuss the issue with Trump, but left the meeting with no assurances.

This is the first year that taxpayers have filed returns under the new law. Some taxpayers are paying more as a result of the SALT cap.

But in about 75 percent of cases the concern has been overblown. Because the law also changed how the alternative minimum tax works -- a separate tax calculation to prevent people from using deductions and other breaks to reduce their tax bill -- many people enjoyed lower tax bills despite only getting $10,000 of SALT write-offs.

“The argument from some that this is a giveaway to the rich is BS,” Pascrell said. “This is a double tax if I ever saw one.”