Negotiations in the Senate over expanding the state and local tax deduction hit a new snag with two key lawmakers at odds over whether the plan should raise revenue for other spending priorities in President Joe Biden’s economic agenda.
Senator Bob Menendez, a New Jersey Democrat, told reporters Monday that Senator Bernie Sanders has “walked away” from a previously-agreed-to plan that changes to the deduction be revenue neutral over the 10-year budget window, which would allow for a more generous tax break.
Sanders said on Monday he wants the reworked SALT deduction to raise revenue — which he says could amount to a couple hundred billion dollars — to pay for expanding dental and vision health coverage under Medicare.
“We said that we believe that the SALT should be whatever is revenue neutral,” Menendez said Monday. “And that’s what I thought we were doing. Now it seems that he has desires of using some of that revenue by cutting back.”
Sanders and Menendez last month had agreed on a proposal that would allow unlimited deductions for SALT under a certain income cap and phasing out the tax breaks above that limit, but have yet to iron out the specifics. Sanders says he wants to set that threshold at $400,000, but Menendez has floated a higher limit — as much as $550,000.
Menendez said that estimates from the congressional Joint Committee on Taxation show that allowing unlimited SALT deductions for individuals earning as much as $550,000 and married couples earning roughly double that amount won’t add to the deficit over the course of the decade-long budget window.
The disagreement over SALT introduces new complications to one of the most controversial aspects of Biden’s economic agenda. Democrats say expanding the $10,000 cap on the SALT deduction is a key priority, but doing so also means cutting taxes for many high-income households.
The cap was imposed in the 2017 tax law, but is currently set to expire at the end of 2025. The expiration means that congressional budget analysts have to assume that the cap would be fully lifted after 2025 because that is current law. As a result, if Democrats impose some sort of limit on the SALT deduction from 2026-2031, that counts as revenue for budgeting purposes.
The House-passed version of Biden’s economic bill would allow for up to $80,000 in SALT write-offs. Sanders said that would do too much to help millionaires, so the Senate version must be scaled back significantly.
— With assistance from Laura Litvan
