(Bloomberg) -- Democrats may include at least a partial expansion of the state and local income tax deduction in the $3.5 trillion budget outline that Senate Democrats agreed upon earlier this week, according to one of the lead senators fighting to restore the full deduction.
The so-called SALT deduction was capped at $10,000 in the Republican tax cut act of 2017, and lawmakers from high-tax states have been battling to include an expansion in the longer-term fiscal packages being debated in Congress this year.
A spokesperson for Senator Bob Menendez of New Jersey confirmed a statement the New Jersey Democrat made Wednesday, that the deduction -- controversial among progressives -- would be increased in the budget resolution Democrats plan to use as a legislative vehicle for sweeping tax and spending initiatives.
“My understanding is there is a SALT provision in there that would provide relief,” Menendez -- a member of the Senate Finance Committee, which will have a role in drafting the budget bill -- told NJ Advance Media.
Menendez and other Democrats from high-tax states like New Jersey, New York, and California have pushed for the deduction cap to be repealed, or at least raised, for the past several years.
Progressives’ Concern
Representatives and senators from those states have said their votes for the overall Biden administration’s economic agenda could depend on whether it contains a restoration of the deduction. With razor-thin majorities in the House and Senate, that could make or break Democratic ambitions for a multi-trillion dollar package.
But including a full repeal or partial lift of the cap doing could decrease federal revenues by tens to hundreds of billions of dollars over the 10-year budget window Democrats have to work with.
Much of the deduction goes towards wealthier individuals, giving some progressives, like Representative Alexandria Ocasio-Cortez of New York, concern that a full or partial repeal could crowd out other priorities of theirs, like tax breaks and spending for low-income families and individuals.
©2021 Bloomberg L.P.
