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Trump-era tax change emerges as a corner issue in Democrats’ infrastructure debate

Dissent over restoring unlimited tax deductions to states and local communities has emerged as a critical point in Democrats’ path to advancing President Joe Biden’s broad infrastructure plan.

Unlike most of the policies of former President Donald Trump, which the Biden administration sought to largely reverse, the institution of so-called SALT caps by Congress in 2017 received support from elements of the Party. Democrat – including the president himself. .

Progressive groups have maintained that the deduction primarily benefits the wealthy, and the White House has indicated it wants to keep them because they can help pay for the infrastructure plan. Calls to roll back the caps and restore the unlimited deduction, however, have come from a growing number of moderate Democrats, mostly from the Northeast and California – including House Speaker Nancy Pelosi, D-California, and Senate Majority Leader Chuck Schumer, DN. Y. – where resident owners of these high tax states can benefit from relief from their federal taxes.

The debate places Biden, who has campaigned to reverse most of Trump’s tax measures, including the SALT caps, in the unusual setting of opposing the reversal of Trump’s policy.

Democratic strategists and lawmakers say the battle should come as no surprise: Trump staged this fight even when he included the controversial caps on SALT deductions in the tax cuts and jobs law. The measure, as expected, split Democrats into a richer establishment camp that favored uncapped deductions, and a more populist and progressive wing that openly supports higher taxes on the rich to pay for social programs and reduce income inequalities.

“Democrats haven’t shown they’re all in the same boat. And Mr. Biden doesn’t have much leeway here, ”said Glenn Totten, a seasoned Democratic strategist.

“For now, this whole debate only makes the job of Mitch McConnell and the Republicans easier, because it presents it as a blue state against a red state,” he added. “That was one of the intentions of the SALT caps in the first place.”

“ Not an income generator ”

The White House has repeatedly pointed out that SALT caps are the rare Trump-era political problem that Biden supports.

During press briefings last week, White House press secretary Jen Psaki answered multiple questions on the SALT issue, stressing that the removal of the caps “is not a source of revenues, ”even after reporters pointed out to him that Democrats who support reversing caps could easily sink an infrastructure bill.

Axios reported earlier this month that senior administration officials believed keeping the caps in place was “good policy” because they brought in tens of billions of dollars in federal tax revenue.

A spokesperson for the Biden administration responded to NBC News’ questions about the White House’s position on SALT, highlighting Psaki’s comments in recent briefings.

Progressive groups and policy makers have said they support the SALT caps because they actually make a large portion of top incomes pay more in federal taxes, which can then be used to fund progressive programs.

“There is a need to tax the rich, which has become a largely popular position. It is clear that it has to happen. It is one way to do it,” said Maura Quint, executive director of Tax March, a progressive group. which advocates taxation. justice.

But so far lawmakers who want to reverse this particular Trump policy are not moving.

Eight moderate Democrats in the House, mostly blue states where residents have been hammered by Trump’s SALT hats, wrote a letter earlier this month, saying they were a tough “no” to Biden’s plan if it didn’t include lifting them.

“We will continue to fight until this becomes part of the bill. It’s as critical as a road, a bridge or a tunnel, that’s why we’re going to keep fighting for it until the end, ”said Rep. Josh Gottheimer, DN.J., who was there. ‘one of the eight to sign the letter, said in an interview.

“The SALT deduction cap was designed to target blue states,” Rep. Mikie Sherrill, DN.J., who also signed the letter, said in an email. “We are being punished for putting in place programs that help our citizens.”

Rep. Tom Suozzi, DN.Y., another signatory, told NBC News that, “If we don’t do it now, we won’t. I am pushing for a complete repeal. He added, “No salt, no deal,” repeating a mantra he and Gottheimer said recently.

Pelosi has said in recent days that she is a “big supporter” and “in favor” of removing the caps and that “I hope we can include it in the bill.” Schumer, meanwhile, sponsored a bill earlier this year that would reinstate the SALT deduction.

That could end up being more than enough to push Biden, who had expressed support for repealing the caps in the presidential primary, to cancel them and align with the moderates.

Democrats have a slim majority in the House and must minimize their defections to pass a bill, unless they gain Republican support. In the Senate, a host of other issues, including a vigorous debate over raising corporate taxes, promise to further complicate the plan’s future.

“Retribution policy” or taxing the rich?

Prior to 2017, tax filers could deduct all of their state and local taxes from their federal taxes.

For taxpayers in high-tax states such as New York, New Jersey, Connecticut, and California, the SALT deduction offered potentially huge federal tax relief, as filers could write off the large amount of local and state taxes that they claim. they were paying.

But the Trump administration, under the Tax Cuts and Jobs Act of 2017, instituted a cap of $ 10,000 on that deduction, meaning that tax filers who pay tens of thousands of dollars state and local taxes now face a very low cap on what they can deduct. As a result, the amount of federal taxes owed by these tax filers increased significantly.

Supporters of keeping the SALT caps, including progressives, have pointed out that removing them would disproportionately benefit the wealthy. According to a 2020 Brookings Institution analysis, 96% of the benefits of a SALT cap repeal would help the top fifth of all taxpayers, and nearly 60% of the benefits would help the richest 1%. Twenty-five percent of the benefits of repealing the SALT cap would flow to the richest 0.1% of taxpayers, according to the analysis.

Lawmakers in high-tax blue states claimed Trump and Republicans included the measure to punish them. (New York Governor Andrew Cuomo called the policy a “policy of retribution, outright.”)

“It is impossible to deny that the Republicans, when they drew up their tax bill, were quick to try to use the wedge issues where possible,” Totten said.

What happens next?

The irony that Biden’s stance on Trump-created policy could make or break an infrastructure package is not lost on policy makers. Several have said that regardless of this unusual intersection, Biden’s apparent support for maintaining the SALT caps simply helps build the consistency he has so far maintained in progressive policymaking.

“It makes some weird bed mates,” Democratic strategist Joel Payne said.

Payne pointed out that, although this was Trump-era policy, the SALT caps actually align with a progressive “bottom-up” approach to the economy – an approach the Biden presidency has adopted. been consistent.

“The president is siding with the progressive position, which has been a common thread in all his political statements so far, certainly with fiscal policy – that the rich and the well-connected should pay more,” he said. he declares. “And the fact that he could possibly dig in there represents a radical shift in mainstream democratic politics.”

According to Payne, Biden “will negotiate on this”.

The president is scheduled to meet with Democrats and Republicans in the House and Senate on Monday to discuss his infrastructure plan.

What future talks will look like – possibilities include giving moderate Democrats what they’re looking for; lift the caps instead of lifting them completely; or promise that the treatment of caps will come in a different bill, perhaps the second infrastructure bill promised by Biden – is just the latest example of how Biden will have to work to maintain the delicate coalition of the Democratic Party together while keeping its promises to cancel many of its predecessors. Strategies.

Some progressives are signaling that they are ready to give up ground.

“Basically, SALT isn’t necessarily the main issue,” said Quint, of Tax March, whose group last year strongly opposed efforts to repeal the caps. “We need to look at larger issues like increasing the corporate tax rate, a wealth tax. The SALT cap is not an area in which we get lost or divided. “

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