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SALT Alternative Takes Shape as Democrats Move Past Biden Plan

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What You Need to Know

  • The latest state and local tax deduction bill would remove today's $10,000 cap for some taxpayers and raise the limit to $60,000 for others.

Two House Democrats have a new plan to provide a more generous state and local tax deduction, the latest in a string of such proposals that have largely been stymied along with the rest of President Joe Biden’s economic agenda.

The latest state and local tax, or SALT, deduction bill, introduced by Representatives Tom Malinowski of New Jersey and Katie Porter of California, would remove the current $10,000 cap entirely for those making less than $400,000 a year and raise the deduction limit to $60,000 for taxpayers making more than $400,000.

The cap would decrease by $10,000 for each additional $100,000 in earnings, which would phase it out for those earning more than $1 million.

The legislation also requires that anyone claiming the SALT deduction must attest that they do not have total assets worth more than $1 billion.

The $10,000 cap was part of the 2017 tax overhaul and is set to expire at the end of 2025.

By keeping it for some taxpayers, the lawmakers say their proposal would raise an estimated $150.9 billion over a decade. That could fund Medicare vision and hearing benefits, a key priority for many progressive lawmakers.

The SALT plan is unlikely to be taken up in Congress anytime soon. Biden’s Build Back Better agenda has been stalled in the Senate since December after Senator Joe Manchin of Virginia said he couldn’t support many of the spending programs in the bill.

Expanding the SALT deduction had been a key sticking point as senators sought to refine a version of the bill that passed the House last year.

The House version of the legislation contained a measure that would increase the SALT cap to $80,000, an idea that germinated from another Malinowski and Porter proposal.

Lawmakers from high-tax states, like New York and New Jersey, where SALT is particularly valuable have said they wouldn’t back Biden’s economic agenda unless SALT relief were included.

Democrats have make a priority of expanding the deduction since they re-gained majorities in Congress.

However, the tax break has divided the party because the write-off is largely claimed by high income households, the same taxpayers that many Democrats say should be paying more in taxes.

(Image: Shutterstock)

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