Friday, March 29, 2024
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Calls to end $10,000 SALT deduction cap threaten Biden’s tax plan ahead of its release

Calls to end the $10,000 cap on state and local tax deductions are growing from lawmakers.

That may threaten President Joe Biden's new tax plan before it's even announced.

The so-called SALT deduction cap was installed in 2017 as part of former President Donald Trump's signature tax legislation. It mostly hit the wealthiest Americans, as well as those in states with high taxes and costs of living — generally, blue states with Democratic leadership.

Getting rid of the SALT cap would come with a cost at a time when Democrats are pushing for multiple pieces of legislation worth trillions of dollars.

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Biden has just released his $2.25 trillion infrastructure plan, and his upcoming tax bill — set to be unveiled in a speech to Congress on Wednesday night — could top $1 trillion, as well. Taking away the cap would cost about $88.7 billion in 2021 and more in the following years, according to the nonpartisan Joint Committee on Taxation.

Still, the SALT cap is a sticking point for Democrats and some Republicans. More than 20 Democrats and nine Republicans have joined a bipartisan caucus that has pledged not to vote for any legislation that doesn't include a repeal of the SALT cap.

"For high-tax state congressmen and senators, for that matter, they'll be voting against the interest of their constituency if you vote for the plan without the repeal of SALT," said Douglas Schoen, a Democratic strategist, adding that this is a particularly important issue for those up for reelection in 2022. "I'm not convinced that this is an easy vote for them."

SALT rift

Both bills are new and likely to change as lawmakers negotiate the details, which could take months. The rift over the SALT cap has already delayed the infrastructure package and has the potential to derail Biden's tax plan, as well, especially with slim Democratic majorities in Congress.

"They have a pretty good bill that they need every Democrat on," said Ed Slott, CPA and founder of Ed Slott & Co. "If they have any Democrats breaking off over that, they're not going to get anything."

He added that many people who think they'd benefit from the SALT cap being lifted wouldn't get much from the deduction — they'd pay about the same due to the alternate minimum tax.

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