Moderate Democrats Want State And Local Tax Relief

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Speaker Nancy Pelosi and House Ways and Means Chairman Richard Neal (L) announce an agreement on a modified trade pact
Speaker Nancy Pelosi and House Ways and Means Chairman Richard Neal (L) announce an agreement on a modified trade pact

Moderate Democrats in the House of Representatives are warning their colleagues that without promises of state and local relief, there will be “no deal” on tax reform.

Congressional leaders from the Northeast are requesting that federal caps for state and local tax deductions be removed. They are pushing for this provision to be a part of the colossal $3.5 trillion spending bill being pushed by progressive Democrats.

Those caps were reduced to $10,000 when the Republican-led Congress passed its 2017 tax reform bill, which disproportionately affected populous blue states like New York and California.

Last Friday, the House’s Ways and Means Committee unveiled its proposal for tax reform and it did not include a decision repealing the SALT caps. In response, committee chairman Richard Neal (D-MA) and three other congressmen from New York and New Jersey shared a joint statement on Monday to make clear their commitment to pushing for SALT relief.

"With Speaker Pelosi, we continue to work among our colleagues and the Senate to undo the short-sighted capping of SALT by Republicans," they wrote. "We are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities and we are working daily toward that goal.”

Under the Democrats’ new tax proposal, high earners would see their individual federal income tax raised from the current 37% rate that was set in 2017 to 39.6%, as well as a 3% surtax on those making more than $5 million annually.

These increases would be accompanied by a capital gains tax hike that would raise the rate from 23.8% to 28.8% if enacted. Under these proposals, high earners in New York City and California would see a surge in their taxes paid to the government.

According to the nonpartisan Tax Policy Center, the top 20% of taxpayers may receive more than 96% of the benefit of a SALT cap repeal and the top 1% would see about 54% of the benefit. 

Progressive Democrats balk at the idea of extending a helping hand to the wealthy and they have labeled some of their opponents inside the party as “conservative Democrats" for opposing their policy thinking.

This antipathy between moderates and left-wing Democrats was on full display over the weekend as Rep. Alexandria Ocasio Cortez (D-NY) and Sen. Joe Manchin (D-WV) threw verbal blows at one another over the airwaves.

Moderate Democrats appear to have a degree of leverage in negotiations. Knowing that the bill is unlikely to pass in an evenly split Senate and having a only slim five-seat advantage in the House, Democrats need every member on board if they want the $3.5 trillion bill to survive. 

In a sign of the frustration from the party’s moderate wing, Rep. Tom Suozzi (D-NY) warned Monday that he was set to reject the spending bill if there was no SALT relief included, and he made his position clear to congressional leaders.

“I have been consistent for six months, ‘No SALT, no deal,’” Suozzi said in a statement.

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