Finance

California Democrats urge Biden to address SALT cap in infrastructure bill

Greg Nash

House Democrats from California sent a letter to President Biden this week urging him to undo the cap on the state and local tax (SALT) deduction in infrastructure legislation.

“As you turn your attention to the American Jobs Plan, we urge you to address the $10,000 cap President Trump placed on the State and Local Tax (SALT) deduction, which has hurt our constituents and people across the country since long before the COVID-19 pandemic began,” the California Democrats wrote in a letter dated Thursday. “The removal of this arbitrary cap is necessary and prudent as we seek remedies to help the American people during this time of recovery.”

The letter is the latest push from lawmakers in high-tax states to lift the $10,000 SALT deduction limit in legislation based on Biden’s American Jobs Plan. Most House Democrats from New York signed onto a similar letter earlier this week. 

While the New York lawmakers threatened to oppose the infrastructure bill if it doesn’t repeal the SALT deduction cap, the California Democrats stopped short of making a similar threat in their letter while advocating for the cap’s removal.

Forty-one House Democrats from California — all but Speaker Nancy Pelosi (D-Calif.) — signed the letter. Reps. Mike Levin, Josh Harder and Katie Porter took the lead on the document.

Pelosi was sent a copy of the letter and has said that she hopes that the SALT deduction cap can be addressed in an infrastructure bill.

The SALT deduction cap was created by former President Trump’s 2017 tax-cut law, in order to help offset the cost of tax cuts elsewhere in the measure. The cap is strongly disliked by many lawmakers on both sides of the aisle from states such as New York, New Jersey and California, who argue that the limit punishes their states and residents.

“Enactment of the SALT cap specifically targeted states and localities that have chosen to provide strong taxpayer support for critical government services such as education, health care, transit, and social services,” the California lawmakers wrote. 

Many Republicans, as well as some Democrats, such as Rep. Alexandria Ocasio-Cortez (D-N.Y.), have criticized the effort to repeal the SALT deduction cap because it would largely benefit high-income households.

The California Democrats pushed back on that argument by saying that 3 million California households with income below $100,000 took the deduction in the last year before the cap was established. The 2017 tax law reduced the number of people who take itemized deductions not just by creating the SALT deduction limit, but also because it substantially increased the size of the standard deduction.

Biden released his $2.25 trillion infrastructure plan late last month, and he proposes paying for it through tax increases on corporations. The plan did not include rolling back the SALT deduction cap, but many Democrats would like legislation based on it to include repeal of the limit. However, that could be challenging given the fact that repealing the cap would reduce federal revenue.

“Your American Jobs Plan, and the associated Made in America Tax Plan, are a key part of ensuring our country emerges stronger from this pandemic,” the California lawmakers wrote. “Alongside policies that create good jobs and ensure corporations pay their share, we must restore fairness to the tax code for the middle class by restoring the SALT deduction.”

Tags Alexandria Ocasio-Cortez California deductions Donald Trump Joe Biden Mike Levin Nancy Pelosi Salt taxes

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