SALT deductions may be doomed as Biden’s massive spending bill faces cuts

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Hopes to lift the cap on so-called SALT deductions for taxpayers in high-tax states like New York are growing bleaker as President Biden’s infrastructure bill gets cut down to size, sources told The Post.

Biden’s massive spending package, initially pegged at $3.5 trillion, is now being whittled to roughly $2 trillion. That, in turn, is shrinking the likelihood that blue states will see their federal deductions on state and local taxes — popularly known as SALT — restored after the Trump administration capped them in 2017, according to Beltway insiders.

“Given how much the overall reconciliation package has to be cut down… it will be hard to get SALT relief anywhere near the levels that consensus believes,” Charles Myers of Signum Global told The Post. “It’s hard to give people a tax break when you’re trying to raise taxes overall.”

Donald Trump’s 2017 tax reform plan, which imposed a $10,000 cap on SALT deductions, was a stick in the eye for taxpayers in high-tax blue states like New York, New Jersey and California. While the caps have taken some of the blame for a recent exodus of wealthy New Yorkers to lower-tax states like Florida and Texas, they were popular with Republicans who hail from those states. Last year, the repeal of SALT deductions brought in $77 billion in revenue.

Even before Biden’s bill was being cut down to size, SALT deductions faced an uphill battle. While the budget can pass without Republican votes, Democrats need support from nearly all members of the House and every Democratic senator.

That’s a problem, as progressive Democrats have long been opposed to SALT deductions. Rep. Alexandria Ocasio-Cortez of New York previously made headlines for calling SALT relief “a gift to the billionaires.”

New Yorkers are paying close attention to SALT deductions since it affects them personally, a political risk adviser told The Post.
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New York Sen. Chuck Schumer begs to differ, recently saying, “the SALT deduction for New York helps firefighters, teachers, transit workers and so many other everyday homeowners now faced with unfair double taxation.”

Moderate Democrats led by Rep. Tom Suozzi of New York have insisted that if there’s no relief on SALT, there is no deal. Nevertheless, Beltway insiders are skeptical this is a fight moderate senators — Schumer included — will want to take on.

“People in the House have made this the hill to die on but Schumer is more worried about a primary challenge from AOC,” James Lucier, managing director at Capital Alpha, a Washington-based policy research outfit.

Adding tax relief means there’s less revenue to go toward social programs progressives want like universal pre-K, broadened Medicare benefits, free community college and measures to deal with climate change.

While wealthy taxpayers in blue states could face a few more painful years ahead, some consultants are encouraging their clients to look on the bright side.

“Even though people in blue states want senators pushing for a two-year repeal of SALT deduction, [the caps] will expire after 2025 anyway,” Managing Director Adam Benson of Alvarez & Marsal told The Post.

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