Schumer v. McConnell on SALT: Who’s gonna give?

Democrats, GOP in showdown on restoring tax deduction that helps blue states

Senate Minority Leader Chuck Schumer and Senate Majority Leader Mitch McConnell (Schumer by Tasos Katopodis/Getty Images; McConnell by Ting Shen/Xinhua via Getty)
Senate Minority Leader Chuck Schumer and Senate Majority Leader Mitch McConnell (Schumer by Tasos Katopodis/Getty Images; McConnell by Ting Shen/Xinhua via Getty)

Charles Schumer badly wants another Covid relief package. The Senate minority leader also badly wants to remove the $10,000 cap on deductions of state and local taxes paid.

Mitch McConnell also wants more Covid relief. But the Senate majority leader is strongly against restoring the deduction that Republicans and the Trump administration capped in December 2017, Schumer said Sunday.

The two Senate titans are now in a high-stakes game of chicken on SALT, which is a big issue for residential real estate because deductibility of property taxes helps sell high-end homes.

Democrats’ leverage with Republicans is that another round of Covid relief cannot pass without Democratic votes. But Republicans know Democrats also want more Covid aid and are betting they will sacrifice SALT again, as they have in previous relief packages.

Gov. Andrew Cuomo, for his part, says New York’s congressional delegation should insist on SALT. But he also wants billions of dollars from the next aid package to cover the huge deficits facing his state and transit agency, the Metropolitan Transportation Authority.

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During a news conference in Manhattan, Schumer said the SALT deduction cap is especially unfair to Long Island homeowners, Newsday reported. Removing the cap is worth about $20,000 a year to 700,000 households, he said. But Schumer acknowledged it was an uphill battle in Washington because of fierce opposition from McConnell.

The SALT cap measure had a visible impact on the residential real estate market in high-tax states such as New York and New Jersey, where property taxes typically exceed $10,000 and are not uncommonly several times that amount. Income taxes also tend to be higher in those and other predominantly Democratic states, and Republicans in red states oppose subsidizing them with a federal tax deduction. Democrats argue that overall, blue states subsidize red states, and that cap only made that discrepancy greater.

In reality, the alternative minimum tax in the old tax law prevented many New Yorkers from getting the full deduction for state and local taxes, but the very perception that the cap would hurt property values hurt the market, as prospective homebuyers put off purchases.

Schumer said he will resume negotiations on the relief bill with Treasury Secretary Steven Mnuchin and President Donald Trump’s chief of staff Mark Meadows on Monday. [Newsday] — Akiko Matsuda