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Biden doesn't plan to revive SALT deduction, possibly losing key moderates

President Biden is unlikely to propose reinstating state and local tax deductions in his second tax-and-spending package despite pressure from several fellow Democrats, according to people with direct knowledge of the planning.

Why it matters: That stancecould complicate his goals of passing a multitrillion-dollar infrastructure proposal.

  • The SALT deduction is a top priority for a number of Democrats representing blue states. Its supporters include Senate Majority Leader Chuck Schumer, House Speaker Nancy Pelosi and — during the Democratic primary — Biden himself.
  • The president is now signaling he won't fight to lift the caps that former President Trump imposed as part of a 2017 tax package that lowered corporate rates.
  • The White House omitted lifting the SALT caps from Biden's first infrastructure and tax package, which the president unveiled Wednesday. But some Democrats held out hope that SALT would be addressed in a second package to be announced in the coming weeks.
  • White House press secretary Jen Psaki told reporters on Thursday that eliminating SALT "is not a revenue raiser ... it would cost more money," but if Democrats "want to propose a way to pay for it, and they want to put that forward, we are happy to hear their ideas.”
  • “Final decisions are still being made on the second package, so any speculation is premature,” said a person familiar with the deliberations.

Behind the scenes: A commonly held view at the senior level of the Biden administration is that capping SALT — which Trump did to save money and punish his blue-state enemies — was actually good policy.

  • Senior Biden officials have soured on SALT deductions for two main reasons: It would would undercut their working-class message and would cost them a fortune.
  • Reinstating SALT would reduce revenues by an estimated $70 billion to $80 billion a year, roughly half the annual amount that Biden has proposed to raise by hiking corporate rates.

But some Democrats insist that some tax relief under SALT could counter Republican arguments that Democrats only want to raise taxes.

  • "To not get rid of the SALT limits and then increase taxes could be a potential nail in the Democrats' coffin in the mid-terms" given their narrow majority in the House, said Doug Schoen, a Democratic pollster.

Between the lines: Biden is not rejecting a SALT repeal outright, so much as signaling that the lawmakers who want it will have to add it into the legislation themselves during negotiations in Congress.

  • He could easily sign a massive infrastructure tax-and-spend package if lawmakers force the SALT deduction back in.

Flashback: SALT exemptions were one of the six original deductions in the Revenue Act of 1913.

  • Its origins date back to the Civil War, and the Revenue Act of 1862, which was ultimately ruled unconstitutional according to the Tax Foundation.
  • Before former President Trump signed into law his 2017 tax cuts bill, residents could deduct against their federal income taxes the taxes they paid to state and local governments. Trump's tax bill capped the deduction at $10,000 a year — a move that hit wealthy residents of high-tax Democrat-controlled states.
  • Several powerful members of Congress, including the leader of the House Democrats' moderate wing, Rep. Josh Gottheimer of New Jersey, have told the White House that the state and local deduction is essential to constituents and must be restored. Gottheimer said Trump's decision to do away with SALT cost his state dearly, driving out many taxpaying residents.
  • Gottheimer and New York Rep. Tom Suozzi went as far as to tell Axios that they would not vote for any infrastructure tax-and-spend package the Biden administration proposes unless it brings back SALT. "No SALT, no dice," Gottheimer said. That got the White House's attention.

The big picture: Pelosi can only afford to lose three Democratic votes if Republicans stay unified in opposition to their massive next package of infrastructure, climate initiatives, social welfare spending and tax hikes.

  • It's hard to fathom Republicans voting for anything resembling the proposals the Biden administration has teased out so far.

The bottom line: Gottheimer and others still have a good chance to force their SALT upon a reluctant White House.

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