San Francisco Chronicle - (Sunday)
Restoring tax break a priority for Dems
GOP deduction cap costs billions for blue states
WASHINGTON — A San Francisco Democrat is speaker of the House, a New York Democrat is running the Senate and a Democrat is in the White House — and that could spell a windfall for residents of hightax areas such as California.
Politicians in predominantly Democratic cities and states bristled at a cap that Republicans imposed in 2017 on state and local tax deductions, which has meant many of their constituents are paying hundreds or thousands of dollars more in taxes per year.
Democrats have an ambitious agenda for oneparty control of Washington over the next two years, but repealing that deduction cap on state and local taxes — known by the shorthand SALT — could be an under
theradar piece of it this spring.
House Speaker Nancy Pelosi, DSan Francisco, has made a priority of rolling back the SALT deduction cap, which was included in the Republicanpassed tax bill that former President Donald Trump signed in late 2017. That legislation capped federal deductions for state and local taxes to $10,000, or $5,000 each for married couples filing separately. Pelosi has cited repealing the cap as a possible way to provide relief to Americans during the coronavirus pandemic, and Senate Majority Leader Chuck Schumer, DN.Y., has also sought to restore SALT deductions.
The cap has disproportionately affected blue states like California. An analysis by the state’s tax board in 2018 estimated that loss of the full deduction may have cost California taxpayers $12 billion.
The Republicanrun Senate and Trump blocked efforts to do away with the cap through last year. But Democrats are eyeing a budget procedural move called reconciliation that would allow them to pass legislation with a simple majority in the 100member Senate, instead of a filibusterproof 60 votes, to get rid of the cap as early as this spring.
St. Helena Rep. Mike Thompson chairs the tax policy subcommittee in the House that would handle any SALT cap repeal. His spokesperson said he will try to get the rollback into law through any package he can. “Chairman Thompson will work to utilize any appropriate legislative vehicle to enact this change,” spokesperson Alex Macfarlane said. “State and local governments will continue to need our help more than ever as they work with their citizens to recover from the public health and economic crisis caused by the pandemic.”
Some Republicans are also on board. GOP Rep. Mike Garcia of Santa Clarita, a swingseat Los Angeles County lawmaker, introduced a bill to repeal the SALT deduction cap as his first act after a controversial vote to support efforts that would have overturned November’s presidential election results. Rep. Young Kim of Fullerton (Orange County), another swing district Republican who voted to confirm the election results, joined a bipartisan group of lawmakers last week in introducing a separate bill to repeal the cap.
But the effort puts Democrats in the unusual position of effectively supporting a tax cut for the wealthy — typically anathema to progressive policymakers. The liberal Brookings Institution
“Republicans intentionally targeted middleclass homeowners in Democratic states, and I will be lifting the SALT cap as part of my broader tax agenda.” Ron Wyden, chair of the Senate Finance Committee
think tank called the SALT deduction “a handout to the rich” and urged that it be eliminated entirely. The Brookingsaffiliated Tax Policy Center estimated that the top fifth of the country in terms of wealth would get 96% of the benefit of repealing the cap.
In a test vote last week during the Senate’s consideration of a measure to allow coronavirus relief to proceed, all 50 Senate Democrats opposed a proposed amendment that would have prevented them from repealing the deduction cap. Republican leader Sen. Mitch McConnell’s office then highlighted it as a “vote in favor of a tax break for the wealthy.”
The House narrowly passed a bill cosponsored by Thompson in 2019 to repeal the cap, but 16 Democrats voted against it, including progressive New York Rep. Alexandria OcasioCortez. The Senate never took it up.
Leftleaning Democrats signal that they could support a repeal, however, as long as it is paired with measures that would increase taxes for the wealthy, though that could jeopardize Republican support. After her 2019 vote, OcasioCortez tweeted that she would consider “ways to restructure SALT deductions to provide relief to middle class families” and suggested “another pass ... can get this done right.”
Oregon Democratic Sen. Ron Wyden, a progressive who chairs the Senate Finance Committee that will handle any tax reform legislation, signaled an openness to the idea as well.
“Republicans intentionally targeted middleclass homeowners in Democratic states, and I will be lifting the SALT cap as part of my broader tax agenda,” Wyden said in a statement to The Chronicle.
But Democratic aides and lawmakers cautioned that a controversial effort like tax reform is unlikely to be included in Democrats’ first coronavirus relief efforts this year. “With the expiration of jobless benefits just six weeks away, Congress needs to move quickly on the most urgent items,” Wyden said. That leaves a second package as a more likely scenario for repealing the cap.
President Biden embraced a SALT deduction cap repeal during the 2020 campaign as part of a broader tax package, but hasn’t made clear where he stands on the issue as part of coronavirus relief. The White House did not respond to a request for comment.