Democrats’ feud over SALT tax repeal threatens to derail Biden’s $2.25T spending plan

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American Action Forum President Douglas Holtz-Eakin discusses how the infrastructure plan will be paid for and how it will impact the U.S.

A growing rift among Democrats over whether to repeal a Trump-era limit on state and local tax deductions is threatening to derail President Biden's $2.25 trillion tax and spending plan. 

Many centrist Democrats from high-tax states such as New York, New Jersey and California have demanded that Biden's proposal, dubbed the American Jobs Plan, include a full repeal of the $10,000 SALT deduction cap.

Their effort gained momentum last week, when a group of 30-member coalition of bipartisan House members threatened to withdraw support for any changes to the tax code in the measure unless it also included a complete restoration of the SALT deduction. Biden has called for raising the corporate tax rate to 28% from 21% and increasing the global minimum tax rate paid by U.S. businesses to 21% in order to fund the multitrillion-dollar initiative.

PELOSI OPENS DOOR TO LIFTING SALT TAX CAP IN BIDEN'S $2.25T SPENDING BILL

"This issue is so critical to our state and our constituents that we will reserve the right to oppose any tax legislation that does not include a full repeal of the SALT limitation," the group – which is calling itself the SALT Caucus – said in a letter to congressional leaders.

With a narrow 218-212 majority in the House, Democrats can risk losing the support of just a handful of members without imperiling the bill's odds of passing.

President Biden walks to a motorcade vehicle after golfing at Wilmington Country Club, Saturday, April 17, 2021, in Wilmington, Delaware. (AP Photo/Patrick Semansky) (AP Photo/Patrick Semansky)

But eliminating the SALT deduction cap would require Democrats to vote for a policy that disproportionately benefits wealthy Americans living in blue states.

Households earning at least seven figures a year would receive the majority of the benefits, according to one analysis conducted by Tax Policy Center. About 25% of the benefits would go to the top 0.1% of U.S. households, which would receive an average tax cut of $145,000, while 57% would benefit the top 1%, which would see an average cut of $33,100. 

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"I don't think that we should be holding the infrastructure package hostage for a 100% full repeal on SALT, especially in the case of a full repeal," Rep. Alexandria Ocasio-Cortez, D-N.Y., told reporters last week. She called the proposal a "giveaway to the rich" and a "gift to billionaires."

The White House has said it welcomes feedback from lawmakers on how best to address infrastructure, which is broadly viewed as a bipartisan issue in Washington, but has remained cool to the idea of a SALT tax repeal, which would likely raise the price of the spending measure.

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White House press secretary Jen Psaki said Thursday that if lawmakers want to restore the SALT deduction, they will need to find a way to pay for it.

"It is not a revenue raiser and so it would add costs, and potentially significantly, to a package," she said. "There'd have to be a discussion about how that would be paid for what would be taken out instead. And then there's sort of a discussion of what's most important to achieving our overarching objectives."

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