SALT cap critic urges Yellen to restore full tax deduction in Biden's $2.25T spending plan

A key Democrat is renewing his push for President Biden to repeal a Trump-era limit on state and local tax deductions in his $2.25 trillion tax and spending plan. 

In a Wednesday letter to Treasury Secretary Janet Yellen, Rep. Josh Gottheimer, D-N.J., urged the administration to lift the $10,000 cap on SALT deductions in the first part of Biden's Build Back Better plan. 

Known as the American Jobs Plan, the measure will pump billions of dollars into the nation's roads and bridges, as well as transit systems, schools, hospitals, green energy initiatives and elder care. It will be funded by raising the corporate tax rate to 28% from 21% and imposing a higher minimum on U.S. businesses' foreign earnings. 

PELOSI OPENS DOOR TO LIFTING SALT TAX CAP IN BIDEN'S $2.25T SPENDING BILL

Gottheimer is one of many centrist Democrats from high-tax states such as New York, New Jersey and California who have demanded that Biden's proposal include a full repeal of the $10,000 SALT deduction cap.

Their effort gained momentum recently, when a group of 30-member coalition of bipartisan House members threatened to withdraw support for any changes to the tax code in the measure unless it also included a complete restoration of the SALT deduction. Biden has called for raising the corporate tax rate to 28% from 21% and increasing the global minimum tax rate paid by U.S. businesses to 21% in order to fund the multitrillion-dollar initiative.

"This issue is so critical to our state and our constituents that we will reserve the right to oppose any tax legislation that does not include a full repeal of the SALT limitation," the group – which is calling itself the SALT Caucus – said in a letter to congressional leaders.

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With a narrow 218-212 majority in the House, Democrats can risk losing the support of just a handful of members without imperiling the bill's odds of passing.

But eliminating the SALT deduction cap would require Democrats to vote for a policy that disproportionately benefits wealthy Americans living in blue states.

Households earning at least seven figures a year would receive the majority of the benefits, according to one analysis conducted by Tax Policy Center. About 25% of the benefits would go to the top 0.1% of U.S. households, which would receive an average tax cut of $145,000, while 57% would benefit the top 1%, which would see an average cut of $33,100. 

The White House has said it welcomes feedback from lawmakers on how best to address infrastructure, which is broadly viewed as a bipartisan issue in Washington, but has remained cool to the idea of a SALT tax repeal, which would likely raise the price of the spending measure.

White House press secretary Jen Psaki said last week that if lawmakers want to restore the SALT deduction, they will need to find a way to pay for it.

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"It is not a revenue raiser and so it would add costs, and potentially significantly, to a package," she said. "There'd have to be a discussion about how that would be paid for what would be taken out instead. And then there's sort of a discussion of what's most important to achieving our overarching objectives."

Gottheimer, however, argued that restoring the full SALT benefit could be paid for by increasing IRS enforcement and cracking down on taxes that go unpaid each year. IRS Commissioner Chuck Rettig recently estimated that tax evasion in the U.S. is about $1 trillion annually. 

"Shrinking the tax gap would not only fund the full return of the SALT deduction to the hard-working families of New Jersey, but it would also provide substantial resources for infrastructure spending and encourage long-term tax compliance," Gottheimer said in the letter. "All of this would be accomplished without raising rates on families or complexity in the tax system."