New legislation to roll back a $10,000 cap on the state-and-local-tax deduction has picked up support from some senators who have hinted at or announced a presidential run, but the issue could split Democrats on the debate stage.
The cap, put in place by the 2017 GOP tax-code overhaul, has long drawn criticism from Democrats, who say it targets high-tax states such as New Jersey, California, and New York, which also happen to be controlled by Democrats.
Sen. Bob Menendez and Rep. Bill Pascrell, both representing New Jersey, announced legislation Monday that would fully repeal the cap on SALT deductions, while also raising the top individual tax rate from 37 percent to the 39.6 percent in place before the tax-code overhaul.
The Menendez bill exposes varying levels of enthusiasm on the repeal issue among possible 2020 presidential contenders in the Senate. As of Thursday evening, Sens. Cory Booker, Kamala Harris, and Kirsten Gillibrand have cosponsored the Senate version with Menendez. Sens. Elizabeth Warren, Amy Klobuchar, Sherrod Brown, and Bernie Sanders have not, according to Congress.gov.
While there are many reasons a member may not sponsor legislation—and lawmakers may sign on to the bill at a later date—the split highlights a complex political issue for Democrats, especially those looking to capture high-tax, coastal states as well as progressives in places like the Midwest.
“It’s a complicated political issue, because on the one hand, it’s the instinctive response for a Democrat to criticize much of what’s in the Tax Cuts and Jobs Act—it’s Donald Trump’s tax cut, it’s aimed at rich people, which is all true,” said Howard Gleckman, senior fellow at the Tax Policy Center. “One the other hand, you’ve got to be a little bit careful about this particular proposal because it is something that would benefit high-income people.”
Brown hasn’t looked at the Menendez bill, he told National Journal on Tuesday. Sanders told National Journal the same day that “the devil was in the details” on rolling back the SALT cap and he would need to examine any proposal closely.
Proponents of lifting the cap argue that doing so would also benefit middle-class taxpayers.
“The Republican tax plan was an attack on our state, it hurt hardworking New York homeowners who play by the rules, and it gifted over a trillion dollars in permanent tax cuts to the biggest corporations, which ended up spending their windfall on bonuses and stock buybacks,” Gillibrand said in an emailed statement.
A September study by the Tax Policy Center found that households making $755,000 or more would receive 56 percent of the tax cut, which would cost about $620 billion over a decade. About 3 percent of middle-income earners, those who make between $49,000 and $86,000 per year, would pay less if the cap was fully repealed.
Gleckman said that’s why many SALT cap proposals would roll back the cap, but only up to a certain income, or employ another way to try to limit the benefit to the upper-middle class and not to the rich, such as the increase in the top tax rate in the Menendez bill.
Gleckman said the political dynamics of the issue split along two lines: geographic and ideological. Democrats who live in high-tax states are more likely to back lifting the cap. Booker, Harris and Gillibrand fall into this group.
“By restoring the top marginal rates and repealing the unfair caps on state-and-local-tax deductions, we can begin to build a fairer and more progressive tax code for all Americans,” Booker said in an emailed statement.
Some Democrats have a different calculation. In Midwestern states like Minnesota or Ohio—Klobuchar’s and Brown’s states—the issue isn’t as important, Gleckman said.
There is also an ideological divide due to how the benefits from lifting the cap are distributed, Gleckman said.
“If the whole core of your message is that the tax code is rigged to benefit high-income people, it’s hard to support a provision that’s going to cut taxes on high-income people,” Gleckman said.
Warren—a consumer advocate who helped found the Consumer Financial Protection Bureau—did not cosign the legislation, despite representing Massachusetts, a high-tax state.
The offices of Warren, Harris, and Klobuchar did not respond to requests for comment.
During the 2018 elections, blue-state Republicans—especially from affluent suburbs—were virtually wiped out. Eleven of 12 congressional districts in New Jersey are now Democratic, up from six. That includes the districts of former GOP members like Leonard Lance, who, despite voting against the tax overhaul, still lost his reelection bid in 2018.
And the issue remains prominent in the Garden State. A Monmouth University poll released Tuesday said 45 percent of New Jersey respondents say property tax is one of the most important issues facing the state.
In a meeting last week with local reporters, President Trump—a long-time New York City real estate developer—said that he would be open to changing the SALT cap. It didn’t take long, however, before GOP tax writers threw cold water on the idea, with Senate Finance Committee Chairman Chuck Grassley releasing a Monday statement saying he would not take up a measure lifting the cap.
Speaking to reporters Wednesday, Grassley argued that lifting the cap would only amount to a tax cut for the nation’s wealthiest, calling those who criticized the tax-code overhaul for being a giveaway to the wealthy but who now want the SALT cap lifted “intellectually dishonest.”
The Menendez bill comes as some high-tax states and municipalities say they may take a hit to their budgets because of the new cap.
“For counties, the SALT cap and other changes related to the tax-reform bill do come down to dollars and cents and furthermore come down to the programs and services that we provide our residents,” said Jack Peterson, deputy director of government affairs for the National Association of Counties.
New York Gov. Andrew Cuomo, facing a $2.3 billion budget shortfall he says is partly because of wealthy individuals shifting their official residence to a low-tax state, met with Trump on Tuesday at the White House. Neither side announced dramatic progress.
Several states have implemented workaround for their residents to avoid the SALT cap, but the IRS has released rules barring taxpayers from taking advantage of them. New York, New Jersey, Connecticut, and Maryland have filed a lawsuit challenging the regulations.
Cuomo has said he is organizing with other governors to push Congress to repeal the cap, despite GOP opposition.
“Their problem is they used the money that they took from New York to finance their tax cut,” Cuomo said Tuesday on a New York City radio station after meeting with Trump. “So now they'd have to find additional funding to restore the money that they basically stole from New York, in my opinion.”