WASHINGTON – The fate of the state and local tax deduction, a tax break that homeowners in high-tax states like New York counted on for decades, now depends on the fate of President Biden's "Build Back Better" plan to stitch a tighter social safety net.
House negotiators agreed earlier this month to lift the cap on the deduction – set at $10,000 by the Republican-led Senate in 2017 – to $80,000 through the year 2030 and to include the change in the Build Back Better plan.
The move would restore the deduction for pretty much all middle-class homeowners and many wealthy ones, but it is by no means a sure thing. The House proposal could change dramatically in the Senate, where Sen. Bernie Sanders is pushing an alternative aimed at ensuring that the wealthiest homeowners don't benefit from any expansion of the so-called SALT deduction. Moreover, it's still unclear whether the Democrats who narrowly control both houses of Congress will be able to muster the votes for a Build Back Better bill on either side of Capitol Hill.
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Nevertheless, lawmakers who have been leading the push for a full return of the SALT deduction were pleased with the deal to cap the tax break at $80,000.
"This agreement to address the cap on our state and local tax (SALT) deduction will effectively eliminate the undue burden for nearly all of the families in our districts who’ve been unfairly double taxed for the last four years," said a statement issued by Democratic Reps. Mikie Sherrill and Josh Gottheimer of New Jersey and Tom Suozzi of Long Island.
Rep. Brian Higgins, a Buffalo Democrat who has also been pushing to fully restore the SALT deduction, said he was pleased with the compromise, too.
But Higgins added: "I don't know what the prospects are of it surviving in the Senate."
That's in part because Sanders, a Vermont Democrat, is pushing a different plan to partially restore the SALT deduction. Under an alternative Sanders is developing with Sen. Bob Menendez, a New Jersey Democrat, the $10,000 cap on the deduction would remain, but middle-income families would be exempt from it. Instead, the cap would only apply to high-income homeowners: those with annual incomes of at least $400,000 or perhaps as much as $550,000.
Sanders contends that the House SALT plan would give the richest 5% of Americans $400 billion in tax cuts, and said he won't stand for it.
"I am open to a compromise approach which protects the middle class in high tax states," Sanders said in a statement. "I will not support more tax breaks for billionaires.”
Western New York may not be teeming with billionaires, but according to figures compiled by the office of Erie County Executive Mark C. Poloncarz, local homeowners are suffering under the SALT cap, too. Approximately 125,000 Erie County households experienced a tax increase because of the limit placed on the SALT deduction, with the average increase reported at $815 a year.
Given that homeowners across the state face similar burdens, many New York politicians of both parties support lifting the cap on the deduction.
"I'm all for SALT," said Senate Majority Leader Charles E. Schumer, a New York Democrat. "And I'm going to fight very hard to keep SALT in the Senate bill, and I'm optimistic."
But even if Democrats strike a comprise that lifts the SALT cap, Republicans who want to see the cap raised said the move is attached to a big-spending bill that they cannot support.
“While I am open to revisiting the SALT cap to help middle-class New Yorkers, the debate over this narrow provision misses the point," said Rep. Chris Jacobs, an Orchard Park Republican. "This whole multitrillion dollar spending package will drive up inflation and make the economy worse for everyone."
Rep. Tom Reed, a Corning Republican, expressed similar sentiments.
"I support the entire repeal of the SALT cap," he said, adding that he would not support the bills that contains it "because the overall pieces of the legislation are so bad."
The Build Back Better bill is a sprawling effort that would cost at least $1.75 trillion. It would, among many other things, extend the expanded child tax credit for a year, expand Medicaid services for seniors who need home care, expand Medicare to cover hearing issues, establish universal preschool and create tax incentives aimed at expanding the use of green energy sources.
Democrats want to pass the bill in the Senate under a legislative procedure known as reconciliation, but to do so, they must get all 50 Democratic senators to agree to support it. So far they have been unable to do that, as moderate Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have raised concerns about the measure's scope and provisions.
Designing a more modest bill that those senators could back could in turn endanger the passage of a Build Back Better bill in the House, as it might repel some of the chamber's more progressive Democrats.
And if the Build Back Better measure were to die on either side of Capitol Hill, the effort to restore the SALT deduction would die with it, at least for now. But the current $10,000 cap is set to expire in 2025, meaning the SALT deduction may eventually return in full without congressional action.
