New York Democrats, fearing that tax policy has put their state at a competitive disadvantage with states such as Florida, are turning up the heat on their party to repeal the cap on state and local tax deductions.
Most of the state’s House delegation threatened to oppose future tax legislation unless Congress gets rid of the so-called SALT provision enacted in 2017, the Times Union reported. That would appear to include President Joe Biden’s infrastructure 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,” New York House Democrats wrote to House Speaker Nancy Pelosi on Tuesday. Kathleen Rice of Long Island and Alexandria Ocasio-Cortez of the Bronx were the only names missing.
The letter came after New York Rep. Tom Suozzi and New Jersey Reps. Josh Gottheimer, Mikie Sherrill and Bill Pascrell, all Democrats, vowed that they would not vote for Biden’s infrastructure plan unless the cap were repealed.
Republicans in late 2017 capped the amount taxpayers can deduct on their federal returns at $10,000. The law raised federal taxes primarily on high earners in states with steep income and property taxes, such as New York, New Jersey, Connecticut and California.
But the cap had little downside for Florida, which has no state income tax. The tax overall provided a relative advantage for low-tax states, because it lowered income tax rates for high earners without affecting their deductions much. Members of Congress from states that benefited from the 2017 tax overhaul are well positioned to block any repeal of it.
Ocasio-Cortez, despite representing New York, opposes repeal of the SALT deduction cap because it would largely help the well off.
A 2020 study by the Brookings Institution showed 57 percent of a repeal’s benefits would go to the highest-earning 1 percent of households. A quarter of the savings would go to the top 0.1 percent, who would save about $145,000 per year.
A repeal would reduce tax revenue, costing the federal government $673 billion over the next decade, the Tax Foundation estimated, according to the Times Union.
That exceeds what Biden’s infrastructure plan would spend on transportation projects, including repairs for roads and bridges. He has proposed increasing corporate taxes to pay for the $2 trillion plan.
Democrats have a thin majority in the House and, in the likely case that few Republicans vote with them, cannot pass a bill without the New York delegation’s support. That gives the SALT deduction cap opponents, including Senate Majority Leader Charles Schumer, D-New York, great leverage. But they would also be under tremendous pressure to approve a signature bill by Biden even if the cap remained.
[TU] — Cordilia James